First, let me start off by saying my spelling and grammar are terrible I repeated English 101 twice in college so don't judge me on that. A little over two years ago my wife and I decided that we wanted to purchase an investment property. I had been in real estate for a little while helping other people and thought that because I knew the market a little better now was the right time to make the leap. Because I worry that I'll be blamed when sh#t hits the fan and because my wife is all about knowing all the angles before we jump into something we spoke with a buddy of mine who happened to be close to our age and was fairly close to 35-40 units. After speaking with him and his wife we left there feeling extremely confident......if only we knew what was in store.
After blowing to 2-3 grand on due diligence on SFH's that we didn't end up purchasing due to terrible inspections, hidden deferred maintenance or unpermitted work, my wife was starting to doubt if we would ever find a property. I could feel the stress setting in when it finally happened a property that was under contract fell through and we jumped on it. It was a 4 bed 2 bath (it was a beautiful pig, a good enough remodel to rent but issues still remained we were blind to it at the time). The advice that we received set us up for success, we had written into the contract that we could show the property before we closed which allowed us to find a tenant before we even owned the property. We also got the advice to shoot for the moon on rent.
The very basic numbers $165,000 for the house, $33,000 down. PITI $880, rent $1,600. We paid water and trash at $75 a month, cash flow was just above $600 a month which was great for any first-time investor. This is probably the part where you ask yourself well what did they have in store what went wrong? I had used a great program to vet the tenants and run the background checks (a program we still use today) the problem is I was so excited about all the winning we were having that I overlooked the red flags on the background report that I received. Needless to say 4 months into their tenancy we had to do cash for keys (thanks biggerpockets for the idea.) Because of this site we were on top of the process we got the tenants out, they agreed to turn over their deposit for unpaid rent and we had new wonderful tenants in there before we saw any loss of rent. Whats the reason for this story you ask, well the reasons are plentiful.
I want new investors to just jump in, you can't know everything and yes bad things will happen but if you prepare, have the right people surrounding you and handle it with thoughtful resilience you will make it through these hurdles. You also have to realize that you don't know what you don't know. Buying your first rental property is like having your first kid (I know from experience) no matter how much you prepare you'll never be truly ready until you have one and even then they are always surprising you.
The second reason I wanted to share my story is because our first property was a gateway property. We learned how to inspect better, screen better, negotiate better, etc. All things that we couldn't have learned unless we took the first step. We have since then in the past two years gone on to do everything. When I say everything I truly mean it, we now own 29 units, have completed one 1031 and are working on our second 1031, we've purchased owner carries, we are finishing up our first flip and we have moved from single families into small multi-family properties. We don't consider ourselves a success story but we do think we are on the right path to getting where we want to be eventually. There are a ton of layers to the story but maybe I'll save that for a book. I hope that people just starting out take that calculated risk and jump in with both feet. Please feel free to send me a message or reach out if you have questions like everyone else on here I'm definitely not an expert at everything but I'm more than willing to help any way I can.
Great story, thanks for sharing! Cheers to continued success! I do have questions. I'll PM you though.
@Tristan Colborg We saved up for it. At the time we didn't know what we were saving for but we worked to pay off bills and try to live with little debt and it has been a blessing when it comes to now having the flexibility to invest in real estate. I will say that had I known about owner carries more I probably would have pushed a bit harder for that angle and we also now have a HELOC that we can pull from for down payments if we start to thin out our accounts.
Inspiring story and words of advice @Jeremy Woods ! Thanks for sharing and your grammar seemed fine to me! ;)
@Jeremy Woods thanks for sharing. Truly inspiring to me as I’m looking to close on my first deal within two weeks. Im working towards similar goals within the next two years. Great work and way to take action!
29 units .. um you are a success bro . That’s nothing to scoff at . You don’t get that portfolio by being dumb
@Jeremy Woods great story! Thanks for sharing.
It’s time you started laying out your journeys and adventures in a bigger Pockets Blog. From that it’s much easier to compile your book and the community can benefit on the way.
@Jeremy Woods - What advice do you have for someone that has already jumped in but is ready to scale up beyond the 3-4 SF units and get into multi? I'm not ready to 1031 exchange my properties yet but I'd like to scale. How did you scale up?
@Ken Breeze , that’s a really great idea. I know there’s a million books out there but a blog showing what happens step by step for a buy and hold newbie is something that might be worth while.
@Jon Crosby you’re too kind sir, I’m sure my old teacher would give that short story a solid C-.
@Emily C. Are you not willing to 1031 because of lack of equity (too new of a purchase, slow market), it's doing really well and you don't want to give it up or worried about doing a 1031? I just ask because my advice would be based on that without knowing I say your best bet to scale quicker if you don't have the funds lying around are through a HELOC on your personal home or a cash out refi on a rental you already own with equity. I really wanted to avoid HELOCs when we first started out because I didn't really understand them but after really looking in to cost and potential return it became a no brained for us. My word of caution would be it's going to affect your DTI ratio for future loans and I wouldn't use it forever we plan on paying ours (we used it for a down payment) within the year. But, even if we miss that timeline our interest only payment on our down payment is $145 and we cash flow $1500 on that property. Sorry I went off on a few different tangents.
@Dennis M. thank you I really appreciate that. It’s not that we aren’t doing well I would say success for us would be once we get to the point of being able to be pretty hands off with rentals and are able to spend more time with our kids. Once we hit that point I would completely agree with you.
@Jeremy Woods - I'm not really ready to 1031 yet because they are cash flowing really well and they are the long term retirement plan. We also have solid tenants. The third one (our current primary that we're renting out soon) has a HELOC for finishing repairs. It turned into a live in flip. We could continue drawing once that is paid off for the next down payment, partner, or structure a deal with seller financing. Due to leaving my W-2 we may need to move out of the conventional loan space so I was just curious how you financed the multi.
My learning curve is the due diligence process and running the numbers for multis. It seems like a different beast than the SF experience. Lots to learn!
@Emily C. For us even though our SFH was doing well we realized we could do better by selling it. We were making $500 cash flow on a condo and 1031 that into a 16 unit that makes $2500 so for us it was a no brainer but everyone has different plans and risk tolerance. We started calling around and found lenders that are portfolio (in house loans) while they still have a lot of the same requirements for underwriting they are more flexible on things they take into consideration. Due diligence is generally the same just multiplied lol. A lot of small multi families give you all the docs you need rent rolls, bills, summary pages, repairs/cap ex expenditures. Once you get into mid to large multi families that's when you get pro formas, large inspection/appraisal cost and longer periods to vet deals and walk units.
@Jeremy Woods - Thanks! Makes sense!
@Jeremy Woods great story and a great cautionary/encouraging tale for new investors! It takes a strange combination of guts and temperance to get a good start in REI. You have to do the research, but you also have to just get started at some point - close the browser tabs and make a move in the real world! It's great for other new investors to be able to see that, even if everything doesn't go perfectly (and it never will), the mistakes you make on the first go 'round are learning opportunities.
Congrats on your success!
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