After deciding to get into real estate (after reading Rich Dad Poor Dad, just needed to read the first chapter and I knew what I needed to do) I set up a meeting with a real estate agent/lender to go over investing options. The very next day, I received my first MLS automated email w/ a duplex in one of the better areas in Cincy. I reach out to the realtor, we see it that day, and I sign an offer letter on the front porch. A whole 24 hours after deciding to invest in real estate, it was on! The initial numbers were:
-$170,000 purchase price
-3.5% down payment house hacking before I knew that was a thing :)
-3.5% interest rate
-$1200 a month mortgage, taxes, and insurance
-$15k in renos
-Monthly rent: $1000 for unit one and $1200 for unit two
-After 10% vacancy and 5% repair I was looking at a 9% cap rate and 21% Cash on Cash Return
At the time however, only thing going thru my head was "$2200 in rent and I am only going to have to pay $1200 for a mortgage? That means 1k a month in my pocket for no work, sweet!"
Boy was I wrong. Having a "do and learn" attitude, combined with the handyman abilities of a new born infant, I have had many frustrating and just straight embarrassing moments:
1) I didn't realize I needed to put my utilities in my name before closing, so I show up to my property with the Duke Energy guy a few days (and a few celebratory drinks) after closing to get them turned on. I leave for the day feeling accomplished (I think I had ripped out some carpet). The next morning when I return, I walk thru the front do to a very loud "whooshing" noise coming from the basement. As I walk down the stairs, the whooshing sound gets louder. As I reach the bottom and turn to the sounds source, I am confronted with downpour of water coming from the ceiling of the basement bathroom. After figuring out how to turn the water to the house off (quick google search, mental note taken), I come to figure out that I had 6 burst pipes and a destroyed bathroom...
2) After the pipes incident was solved, I decided that I needed to rent this sucker out before I totally destroyed my new property so I decided to hired someone to paint. He said it would cost 5.5k with a 30% deposit. Not knowing anything about how much it costs to paint, I agree and fork over $1600 bucks. When my other investor buddies tell me how expensive that is, it takes me 3 weeks and the threat of legal action to get my $1600 back.
3) When I finally decide to just paint the property myself, I forgot to lay tarps/paper on the newly installed hardwood floors I just purchased. I had spilled some initially and saw how easy it was to wipe off, so I just continued painting without anything covering the floors. When I come back a week later to clean the floors, I figure I would just run a swiffer over it and be good to go. WRONG!! I end up on my hands and knees for over 6 hours with a nickel and sponge cleaning every single spot of paint off these floors.
You get the idea. I "do" and then "learn" later.
Most people I know would have quit after seeing a waterfall in their basement. If they didn't, they would have definitely quit after they were scammed by the first contractor they worked with. No one would have even had the chance to get to the point where they would have had spend an entire Saturday cleaning each individual hardwood floor plank riddled in gray paint. But I am not most people. I know deep down that I am going to be one of the greatest real estate investors ever and I know I will earn my financial freedom. Call it delusional, insanity or whatever you want but I am willing to do whatever it takes to make it happen. Luckily, I have found a few other "unplugged" (matrix reference anyone?) individuals in my area that have similar beliefs and goals as me, who also have a little more experience with houses so a lot of the stupid mistakes can be eliminated from here on out (hopefully). I know that more costly, frustrating mistakes will happen, but it's just another bump in the road and another lessoned learned!
So obviously, no ones numbers are correct the first time so here are what the numbers ended up being:
-25k in renovations
-$1200 for unit one and $1600 for unit two
-12.8% cap rate and 41% cash on cash return. BAM
Looking forward to learning more on Bigger Pockets and looking forward to my next deal/"do and learn" experience even more! At the end of the day, I have a degree in Chemical Engineering, so I will always have something to fall back on, so what is there to lose?
I hope you enjoyed reading my humorous first experience with real estate investing and if you have had similar negative experiences or share in my delusions, feel free to comment below :)
I apologize for any grammar/typos. I am an engineer, not an author :D
I loved it! Thanks for posting about your first project. It sounds like a success to me. It's always good when you can laugh about your mistakes after the fact. Good luck for Project #2.
Great info! Laughed out loud at some of the humor and I can tell you have myself spent many hours on Google / YouTube to llearn how to fix things (as my wife rolls her eyes in the background). Congrats, hope I'm not to far behind for my first deal.
Excellent read. Thank you. Just curious….was there an inspection on the home? Did the water leak issue develop after the inspection was done?
Carol, I did have an inspection but the water leak issue did not develop organically. Unfortunately it was cause by user error (me) 100%. At least now I know what it means to put the utilities in my name before closing!
Thanks for your candidness @Theo (not sure why tagging isn't working). You're getting a priceless experience that you can't get in a seminar or from reading a book... or website. Keep your head up and keep moving forward.
@Theo Hicks I had my pipes burst at my first property as well, also my own fault. Lucky for me they were in the crawl space and didn't cause any real damage! Congratulations on your first deal. Hope to see more success stories from you in the future. Good luck!
You can't make mistakes if you don't get off the couch. Congratulations on your mistakes.
Gotta love how you dive in and take action. As long as you're learning a lot along the way and not repeating any mistakes, I think you'll be destined for REI greatness. Hats off to you.
Strong rent. quality
Congrats on starting out! Remember there are no bad mistakes, only bad sequels. - Yoda
I just want to say congratulations on the first purchase and the story.
@ Theo! Enjoyed reading your first hands on encounter with landlording! Love your""go for it mentality" - very tenacious. Looks like it can only get better. Congratulations and best wishes moving forward. In process of looking for first rental thus your article is very encouraging. Thanks for sharing.
@ Theo! Enjoyed reading your first hands on encounter with RE ownership! Love your "go for it mentality" - very tenacious. Looks like it can only get better. Congratulations and best wishes moving forward. In process of looking for first rental thus your article is very encouraging. Thanks for sharing.
Your story sounds very exciting..I can't wait to make my first deal. Why did your pipes burst..cold weather? Also, why should you get the power bill in your name before closing?
Awesome, awesome, awesome!
I'm a plumber by trade and even Im impressed. A lot of investors in my area would run screaming when it comes to leaks, But you handled it exactly as you should have.
Great first deal!
@Theo Hicks , I commend your persistence! What caused the leak? Did the pipes freeze due to heat/electricity being turned off?
Question for you, are you living in one side of the duplex? If not, what did you do to finance the property? Did you save up for the down payment and the reno costs prior to starting?
Beth (new to REI)
I'm also curious what the cause was on the burst pipes. Question 2 is what kind of legal action were you threatening against the painting contractor?
Congrats!!!!! It's certainly a learning experience when it comes to your first property. I'm still learning since I'm the kind of guy that thinks why pay somebody else when I can just do it myself. Of course I'm not touching electrical or plumbing with a ten foot pole. I'll leave that stuff to the pros, but other than that I'm game. If you ever have questions the BP family is the place to go. Keep us all updated on your future purchases.
@Elizabeth Lester-Medado My initial intentions were to reno, live in the 1br unit and rent out the top to a few friends of mine. I did not really do my due diligence prior to acquiring this property (hence all the mishaps) but after doing some research, mostly on BPs, I decided against renting to friends lol. Once I realized how freakishly high rental rates were in my area, I decided to rent out both units. As for financing, I had a college fund that I did not have to use, so I was able to use that as a down payment plus renovations. I still live in one of the units now but will be moving out at the end of May. If you plan on living in one of the units and it is your first time buying a place, I would highly recommend going the FHA route. You only need 3.5% down and then it's all yours!!!! Good luck on your first purchase, it is a blast!
@Kyle Hipp just a weekend of sub-freezing temperatures w/ the heat off and incompetence on my end lol
And as for the legal action, the contract I signed stated that I had 72 hours to cancel or else the deposit is non-refundable. I called/texted to cancel about an hour after signing the document so when I brought that to light, he mailed me a check for the full deposit. Honestly, it was an empty threat, I am not sure what I could have done. Glad it ended up working out for me. I actually ran into him last week at Home Depot. Talk about awkward...
Wow! Very impressive and courageous. Strong character traits👍
As of July 1st, both tenants have moved in relatively smooth. Unit 1, which is a 1 bed/1 bath w/ an office rented out for $1200 per month starting June 1. Unit 2, which is a 2 bed/1 bath rented out for $1400, with a two-year lease. Lessons learned so far:
Initially, utilities were not included, and I was going to bill each unit at the end of the month. When making this aware to potential tenants during showings, the reactions were mostly negative. At this point, I was marketing unit 1 for $1100 and unit 2 for $1450. I decided to include utilties and mark-up the prices to $1200 and $1600 to gauge the reactions. I got a bite during the first showing for unit 1, renting it out for $1200 a month. Unit 2 took a little bit longer to rent out.
2) Rent Prices
I was having a lot of difficulty renting out my second unit for $1600. I would say that the market rent for 2 bedrooms in my area are around $1000, but I figured "it only takes one," so I started out insanely high. After a few showings, I realized $1600 wasn't going to happen, so I dropped it to $1450. I instantly received 10+ emails asking to see the property. Two tenants told me that their max budget was $1300 a month (which I would have taken) but I countered by stating I could do $1400 a month for a two year lease and they agreed.
3) Tenant Requests
With the utilities not being split, the only thermostat was on the 1st floor (unit 1). I made this clear to the potential tenants during showings of unit 2. Then the tenants finally moved in, they asked where their thermostat was. When I responded, they asked for an AC unit to be placed in there unit so they could control the temperatures. $300 dollars later, and about 15 minutes of my time, and my tenants had a working AC unit. Other requests were replacing the ceiling fans (I didn't even think to test them, so they were either very loose or very noisey), repairing a door that was "hard to lock," and repairing a poorly wired electrical circuit. All of these requests were fulfilled within a day or two after initial contact.
-I learned that it makes sense to adapt based off of responses you get during showings instead of being very strict in you requirements. If I would have stayed the course, I would still be looking for tenants
-Be sure to test all components of the house, including door locks, ceiling fans, and everything inbetween
-Procrastination on tenant requests or ignoring the maintenance due to a few hundred bucks gets you the short term satisfaction of not having to get off the couch, but could potentially result in the tenants being a little bit more picky or deciding not to renew with you. I have discovered the importance of having a solid, positive tenant-landlord relationships.
I am sure all of these lessons are fairly obvious to experienced investors, but as a complete novice, they were little things that I didn't even think of!
Currently, my partner and I are in the contract phase of another duplex, and will be acquiring a 4plex from the same seller once we close on this duplex! Exciting times!
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