Nightmare 1st Property - Does it get better?

Nightmare 1st Property - Does it get better?

Rental Property Investor · Austin, TX · Member since 2017 · 26 posts · 14 votes

Hello Everyone,

I currently live in one of the most expensive areas of the country (Bay Area, CA). I work in tech at an amazing company (Facebook) and I am extremely fortunate to have a relatively high salary for my age. Despite this salary and having a large total savings, I am unable to afford a 1 bed/1 bath fixer upper condo for 1+ million (the going rate in this area).

Being in tech I keep an eye on areas that have exponential tech growth and Austin caught my eye. I connected with a coworker in that office for a referral of a broke and realtor in that area and things were great. I had never been to Austin but for 6 months as soon as a property hit the MLS, I would review and debate writing offers. During this period of time 6 properties hit the market that I was very excited about. My interest was in renovated properties that would require little to no work, being remote, I did not want to have the extra stress an outdated property. Out of these 6 offers, all were place on the day of the property hitting the market and the very next day each seller asked for best and final.

The 6 property that I put an offer on, was a duplex that hit the MLS for $419k. I had my realtor and broker check the property out and give me their feedback on wether or not I should more forward. They agreed that it was a great location and I should submit an offer. My offer was accepted for $435k (25%/$110k down, 4.65int). It was a completely renovated, beautiful duplex with no tenants in either side (due to the renovations before sale).

Part of the contingency, I had an inspection which returned some questionable items, like no outlet under the sink for the garbage disposal (one of many small things) and a huge electrical panel swap, estimated at $5k. This was extremely concerning for me at the time but after discussing with my realtor and working with the seller they agreed to fix the issues caught by the inspector and give $5k towards the closing cost for the electrical work.

We closed and I used the same people to list the property for rent, as quick as I could. The property sat for 4 weeks with no interest on either side (after the realtor and broker told me it would be rented instantly - people will say anything while you're buying a property). I became concerned and flew out to Austin to visit the property. I found that the property was extremely dirty and there were no blinds, the renovation was sloppy (paint, tape, rushed worked) but as disappointing as that was, I put the time in and cleaned the property and installed blinds and the next week, two tenants applied.

Then the problems FLOWED in. As soon as I got a tenant there were issues after issues. First, I was notified that there were no smoke detectors in any of the units or rooms and I was liable to do install that ($350 for 8). There were no screens on any of the windows and the tenants wanted screens (understandable - not required $500). I was never told that there were no screens but this is relatively minor. The tenants called and said that no outlets were installed in any of the bathrooms (I didn't notice this when I flew out after closing and it was never included in my inspection - not up to code, $1,250). The electrician found exposed romex wiring that was also not called out on the inspection. Immediately upon one of tenants moving in the water heater went out and needed to be replaced ($800). Undisclosed expenses are starting to add up and I am starting to feel like I am drowning in things that were not told to me. Immediately after replacing the water heater, I get a call that the other unit water heater is out and their heater is out as well (HVAC system from 1994, $4,500) this wasn't called out to me either.

So far I have had:

  • Smoke detectors that were missing and extremely overpriced ($350) - not disclosed
  • No electrical outlets installed in any bathrooms and wiring not up to code ($1,250) - not discussed
  • Window coverings ($400) - not disclosed / not required by law but crummy to not know
  • Bad water heater upon purchase ($800) - not disclosed / 2nd one in process of replacing
  • Broken HVAC system ($4,500) - not disclosed
  • Broken Dryer Outlet called out on Inspection was to be fixed (not fixed)

Total: $7,300 in expenses not disclosed that would have swayed me from purchasing this property. Not to mention an extra $1-2k on misc. maintenance expenses.

I am defeated. I feel taken advantage of being a remote buyer without seeing the property. The seller did not disclose (there's no way they didn't know these problems, while doing a renovation). The inspector failed to note any other issues. The realtor didn't catch them either.

Each day I wake up expecting to see some other large expense, that is creating a financial burden on me. The broker has changed up the tune from saying this is a beautiful property that will rent quickly and be low maintenance from a renovation, to saying that I should expect these expenses from a renovated property and I am being a "new investor".

I feel helpless being remote and that jobs that I paid people to complete were not done correctly and I am paying a high price for them. I bought this property with cashflow in mind but with the undisclosed expenses that have come up immediately after purchasing, I am looking at 3 years before I can break even from cashflow on a $110k down.

My plan is to continue to purchase duplex/fourplexs but this experience has been terrible. I am working with a real estate attorney now to figure out what my recourse may be and I look forward to a week/month/year where there are no large expenses. Is my experience typical?!

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Rockledge, FL · Member since 2016 · 493 posts · 427 votes
8y

James, 

Is this typical?  Not usually. 

That being said, there were a few things that you could have done better. Your have stated some of them, but let me see if I can give you some ideas to fix them.

1) You didn't mention anything about the numbers.  First and foremost the deal has to cashflow. At 435k you need to rent each side for 2200 to even think about breaking even,  especially in a high property tax state like TX. Don't buy the BS about sub 1% and appreciation. If it don't cashflow don't buy it. Quite frankly if you are having to put out 3 years of profit on 7300, of expenses,  the deal sucks.

2) 5k for an electrical panel in a completely renovated 420k Duplex is completely untenable. At that price point, the property should have NOTHING wrong with it. Add to that the missing garbage disposal outlet. That is a good sign of someone who doesn't know how to do a punchlist for renovations. In the future come up with a checklist  (read The Checklist Manafesto) and make sure you check EVERYTHING on it. Which leads me to point 3.

If you are investing out of state, and don't have excellent support,  cart your butt there and meet them. You did this deal entirely from your chair in CA. You've never been to Austin for any reason. I don't buy the BS that you can invest in a location without ever having been there. So for the price of a plane ticket and 2 to 3 nights hotel, let's say 1500 bucks you risked 110k of your own money on a 440k deal. Save 1500 (10% of your hard earned cash) to lose, what another 7300? Next time slow down, spend the dough to go see the place and establish the relationships to truly make it work.

Finally, stop the pitty party.  Stop feeling defeated and taken advantage of. Watch spending money on an attorney. Both the agent and the inspector have no liability no matter what they have said. You signed a document that absolved the inspector of any liability and the broker is not responsible for the condition of the property,  only the purchase and sale portion of the deal. Plus,  they were probably a sellers agent, with no fiduciary responsibly to you.

Look, I'm not trying to rub salt in your already open wounds. What I am saying is that most  of this is preventable. Stop focusing on "I have to invest in Real Estate" and focus on "Is this real estate a good business/ investment decision". Get back to basics.

Stay out of multiple offer situations when you first start, and for good measure stay the heck out of "hot" markets. You got creamed because you got in over your head. 20k over on something that doesn't cashflow properly is an impulse purchase not a level headed business decision. 

I would take my next long weekend in Austin,  find an excellent inspector (lose the entire group you are dealing with now) and spend 2 to 3 hours going over the house from top to bottom and getting to know the property. Once you know what you are in for, then you can decide if you want to keep it or dump it. 

FWIW, I bought a SFR 4 months ago, and just had to put a new AC in. Completely my mistake for not insisting that it be pulled apart and looked at. The roof I know about (2 years max before replacement), but was blindsided by the AC. I won't make that mistake again.

You will do just fine in the future. Everyone effs up a deal. You got yours out of the way sooner than others. Keep plugging along, you'll get it. 

Hope that helps. 

Good luck, 

Jim 

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  • Real Estate Agent · San Antonio, TX · Member since 2017 · 523 posts · 362 votes
    8y

    @Account Closed Congrats on taking down a property James. I don't think people are giving you enough credit for taking action. At your age, with your salary, and in your area most people would be stupid and spend it all on useless things, meanwhile you are thinking long term so good job. I can't say that this isn't normal, I've seen way too many California investors get screwed by investing here in Texas. Usually they are ignorant and naive and wayyyyyy too trusting with people who feed them lies to get a commission. Next time really do your due diligence not only on the property but the people you work with. Look at cash flow not area or appreciation like most agents will tell you. Secondly you need to find someone in that area that you trust with your life, and even more importantly your money! It IS A HUGE RISK if you aren't there and are relying on someones word, so I would always suggest doing a walk through with an expert before closing. You live and you learn though, it always could be worse. My mom always tells me to never stay down, you get up and keep grinding. You seem intelligent and like a good person so I'm sure you will be successful but don't let this steer you from REI. You can't control what life throws at you, but you can control how you react and that's what is important. Get yourself together and turn this experience into a win. Good luck!

  • Rental Property Investor · Austin, TX · Member since 2017 · 26 posts · 14 votes
    8y

    Thanks everyone for all of the insight and advice!

    @Josiah Cammer - Would be happy to connect.  This will not be my last purchase and I will be creating a new team in Austin to give this a second go!

    @Katie Hanner - Thank you for your kind words and insight!  I would love to connect with you as well about any attorneys, property management and lenders.

    @James C. - Thanks James, I definitely trusted that these individuals had my best interest, when they did not. To clarify the cash flow comment. I watched the MLS (my first mistake) for 6 months and put in 6 offers with the best rent returns that came up. I did my math and after property management fees, I cash flow $550 a month. I purchased this property before I came across BiggerPockets and how to use proper formulas to plan for CapEx. The team I used insisted that you can not get much cash flow in Austin since the rent market hasn't caught up to the housing price and that my cash flow was excellent but appreciation was my ticket. I am not looking for a pity party, more so if this experience is common and I am being unreasonable by being upset by large ticket items not being disclosed and what my rights are as a buyer. I'll continue to plug away and check cash on cash more informed in the future. Thank you.

    @Matt M. - Hey Matt, thanks for your response!  I will be more diligent and informed in the next purchase.  The property has a net cash flow of $6k a year but if I have new tenants I pay around $2,500 towards placing tenants (being remote).  Hence, I am looking at 2-3 years to break even on my $10k repair cost in addition to having the down of $110k not work for me during these times.

    @Brian Pulaski - Thanks for the reply Brian.  I pulled the permits and the only ones are for the foundation and the electrical work I paid for.  I think my inspector was careless and negligent (never again).

    @Jimmy Dudley - Thanks Jimmy!  I'll ride this out until I see the light!  I'll look for my own recommendations next time.  Have to do things yourself, sometimes to have them done right!

    @Andrew Johnson - Thank you, it has been a lesson learned.  I will not being putting in offers without doing my own walk throughs moving forward (seems silly now I trusted people to have my best interest).  I hope in 15-20 years, I look back and laugh with many profitable properties in my portfolio!

    @Justin R. - Thank you Justin!  Respect is definitely earned.  I gave people the benefit that they wanted to help me succeed vs helping themselves pocket some cash.  I will make sure my next property is close to 1% (which is what I wanted from Austin in the start but was told that's not possible, so I settled).  Paid my tuition this semester!

  • Investor · Naples, FL · Member since 2017 · 69 posts · 34 votes
    8y

    @Account Closed to put a positive spin on it. You are paying/paid for an education in out of state buying. You now know that you need stronger team members on the ground that you can trust. You have a long list of things to look for (or have your agent look for) when purchasing your next property. You know you need better inspections. Just from your post you can create a solid checklist of do's and don't for the next investment. 

    Also, your tenants are going to pay you back for these lessons (if you hold the property long enough). You said it'll be three years before you break even, at least you have that light at the end of the tunnel. My point is, it's not all bad, there's some good buried beneath all the suck. 

  • Rental Property Investor · Austin, TX · Member since 2017 · 26 posts · 14 votes
    8y

    @Max T. - Thank you for your positivity!

    @Ron Flatt - Thank you Ron!  Next time I will make sure the team I am working with is more focused on my success vs their gain.

    @Thomas S. - The trust is gone!  I'll make sure I am more involved in the inspections moving forward.  Thank you!

    @Josh C. - The dirt and blinds definitely bothered me! Still do!  I used a referral to purchase the property from a friend in the area.  The ignorance is on me but I trusted that people would do a good job as part of their job vs doing a job to get paid.

    @Jay Hinrichs - Thank you for your insight!  I realize now how expensive the property tax is and how that doesn't benefit me living in California.  I do intended to move to Austin in the next couple of months but this experience has me putting Austin in a negative light.  I hope my foundation is fine for the next 30 years!  I had that corrected and proof of correction before purchasing.

    @Joe Splitrock - It's been a terrible ride but I know I am on it!  I plan on holding the seller and inspector accountable until I am officially told it is my problem.  I will definitely spend the $400 on a flight next time.  The notary itself is almost the cost of the flight out.

    @Dylan Vargas - Thanks Dylan!  I will not let this situation go unnoticed for anyone in the Austin area.  I will make sure to note who I worked with and what the experience was.

    @JingJing He - Thank you Jingjing!  I couldn't get myself to pay Bay Area prices but I am kicking myself for not testing the waters closer to home.  I took California for granted.  There's no way this would have been acceptable!

    @Fred Heller - That's great advice thank you!  I would have walked away from this deal, had these big ticket items been called out.  I will not make this mistake again!  No finished basements and no do-it-yourself sellers added to my watchlist.  Thank you!

    @Bruce Lynn - Thank you for all of your insight!  I am waiting to talk to the inspector or realtor further until I know what my rights are as a buyer from a lawyer.  If I am screwed, I am screwed but I am not trying to point the finger at parties if they aren't the ones responsible.  I definitely had my realtor tell me about renting at a price point easily, etc.  I will never buy a multifamily without at least 1 tenant in, to get a better understanding of what I am walking into.

  • Rental Property Investor · Austin, TX · Member since 2017 · 26 posts · 14 votes
    8y

    @Michael Boyer - Next time, time I'll change my profession to everyone but the lender :).  I do think they took me for an out of state buyer that they could get things past.  I really like your outlook on this was a real estate seminar.  What I've learned this time around, will not be repeated.  Thank you for your positivity!

    @Aaron Lawson - Thanks Aaron!  I plan to turn this situation around and be much more efficient moving forward.  I am now aware of tools and expenses that I did not realize the first time around.

    @Jody Schnurrenberger - Thanks Jody!  I plan on cleaning shop and starting fresh once the dust settles and my tenants are happy in their units.  The last thing I want is a broken property and unhappy tenants but I do plan on getting an entire team that has my better interest moving forward and diverts the blame on me being green to real estate and takes some accountability for sloppy and careless work.

    @Patrick L. - Thanks Patrick!  I will definitely not trust people and technology as much as I did for my next deal.  I totally understand expenses and macitence but from the first month a tenant moves in to have 10k that was not told to me has been a wake up call.  At this point if I can only get the cost of the inspection back from the inspector, I will proceed to get that $500 as well on principal.  

    @Caleb Heimsoth - I have no idea how it wasn't on the report!  I will explore all options moving forward and look more into turnkeys.  Thank you!

  • Rental Property Investor · Austin, TX · Member since 2017 · 26 posts · 14 votes
    8y

    @Gerald Barron - I appreciate the positive thoughts! There is light in the future and hopefully the darkest days have come.  Thank you!

  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    8y

    I am a big proponent of, particularly for those without experience, to invest in your own market.  Being able to see a property yourself is going to help mitigate a lot of risk.  When you are relying on someone else to put eyes on the property you have to understand that what might look like a great property to them, because it very well might be compared to the 500 dumps around it, which they are use to seeing, might be completely unacceptable to your standards coming from a nicer place.

    Now I cant speak to the Bay area in particular, but I live in DC, and Ive lived in Boston, which while not as expensive as San Fran, both in the top 10 in home prices, both of which have areas where the prices are both much more moderate than the expensive areas people typically think of.  When I pull up the Bay Area and limit my search to properties under $300k Im seeing hundreds of properties come up within a reasonable distance.

  • Real Estate Broker · Austin, TX · Member since 2017 · 38 posts · 36 votes
    8y

    @Account Closed  -- Trust me, this isn't acceptable in Texas either!  In Texas, real estate inspectors are licensed and regulated by TREC just as real estate brokers and agents are.  There are standards of practice and specific items that they are required to address and note as deficient or missing.  Off the top of my head, I know smoke alarms and screens are two of those (in contrast, they are not required to note the condition of blinds, etc).   While I completely agree that it is best for any buyer to physically walk the property prior to closing, there definitely were items that should have been addressed in that inspection during the option period.  And from what is sounds like, things that should have been disclosed by the seller.

    While there are many reputable, quality rehab/flippers i Austin that "do the job right" -- as we all know, there are also several who lean on more "paint on a pig" approaches.  When working with investors, I walk the property as if I'm looking at it as my own personal investment.   Be leary of agents who will make sweeping generalizations "this foundation looks ok", "that's not that big of a deal".... those are things they should not be saying, and can be red flags.

    Of course, I'm not an attorney and do not give legal advice -- but as a consumer you do have rights.  Glad to hear you are talking through that.

    Please don't let this experience deter you from Austin -- it really is a GREAT place to live!  (And having had moved here from out of state originally, the tax benefits sure aren't bad either!)  :)

  • Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes
    8y
    The old saying is “no one will ever do as good of a job as you do”. I manage everything myself and visit the properties regularly.
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y

    @Account Closed  moving there and getting the lay of the land with no doubt help you going forward.

    make sure you keep your drainage in good shape on your property you may need to water your foundation in the summer tenants wont do it.. believe me.. its not if its when.. when it comes to foundation issues in those areas of expansive soils and older homes that were built to absolute minimum codes which is much of the older product in texas..

  • CA · Member since 2016 · 1k+ posts · 1k+ votes
    8y

    @Account Closed - Not everyone is telling you the truth here, or at least not the whole truth..

    I went thru exactly what you are going thru here, about 10 years ago...Back in 2006, Bay Areas was already very expensive then, and I was a young professional making $150K at the time.. Thought it was too expensive here, I headed over to Phoenix and bought 2 properties... $100K down.... I did fly over, checked out everything myself...

    After the purchase, like yourself, issue after issue after issue, repair, constant tenant turn over, 10 thousand other issues... Just never a time when things were smooth...Then came the crash... 

    Long story short, I quickly learned my lesson, cut loss (yes, $100K loss), came back to Bay Area, bought 4 rental, and now sitting on $4M equity... Bought for $700K, now worth $1.5M each... Rents about $4200 each month... Cash flow $70K annually for 4 properties combined....2 of the 4 already paid off with no mortgage....

    If there is anything I can suggest, stay local....IT will be a lot more profitable and EASY at the same time...

    There are many many many properties here, that with $110K, you are roughly break even....

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y

    @Diane G.  you should cash out and start buying notes .. your cash flow will go up 4 to 5 times.

  • Investor · San Jose, CA · Member since 2015 · 54 posts · 29 votes
    8y

    Check out Sacramento.  With the prices in the Bay Area being so high, there are a lot of startups popping up in the Sacramento area.  You could get the same benefits as Texas, while still being able to see your property anytime.  I invested in the Sacramento area about 5 years ago and am very happy with the decision.

  • Los Angeles, CA · Member since 2017 · 22 posts · 13 votes
    8y

    Hello @Account Closed,

    I'm going to push back on the idea that you can't invest in the Bay area.  Oakland is extremely affordable compared to Mountain View and Palo Alto or some other places in the Valley.  I would also look at San Jose and Freemont, Union City and Hayward.

    Since you now have renters and have created an income producing property with all the new fixes you've had to make, you have also increased the value for another buyer.  Maybe you should sell this Austin property to relieve your stress levels and buy something closer to home that produces better income?

  • Investor · Crystal, MN · Member since 2013 · 486 posts · 277 votes
    8y

    @Account Closed

    A lot of good posts on here.  Yep, it stinks to make mistakes on your first deal.  But, everyone I know makes a lot of mistakes on their first deal.  Mine was a mess.  But don't forget, you have options.  You can sell this property.  If Austin is an up and coming market like others have said, then it won't be long before you can recoup your lost money.  The beauty of real estate and bigger pockets, is you can learn from your mistakes.  Listen to the Podcasts, read J Scott's book on Flipping houses, and learn, learn, learn.

    This bad experience has cost you $7300.00, and yes, that stinks.  And I'm sure there is worry about what next will go wrong.  Build up a dedicated savings that will be tapped for this property when stuff is needed....say $5,000.00.  If you spend it, stop all other saving, and rebuild that one fund.  You will sleep better at night knowing you've got that fund at the ready.

    It is a great life lesson, and you will always have a great story to tell other investors.  Do not lose heart....you can do this.

  • Los Angeles, CA · Member since 2017 · 22 posts · 13 votes
    8y

    One more thing @Account Closed. Do you qualify for FHA 3.5% down? Have you thought about buying a duplex, triplex, or fourplex and living in one of the units? I think these are the purchase price limits in the Bay area.

    Single $679,650

    Duplex $870,225

    Tri-Plex $1,051,875

    Four-plex $1,307,175

  • CA · Member since 2016 · 1k+ posts · 1k+ votes
    8y

    @Jay Hinrichs - between not wanting to take big risks, not having too much time/energy outside of work, that is why I am holding onto all my rentals...

    @Account Closed - a lot of posts seem to give the hope that the future is bright and easy, now that you did all the repairs... If I am allowed to be honest, this is only the start of your never ending headaches...Trying to remotely control a property while you have a busy busy job in the Bay is just not realistic, and expecting anyone else to care about your property like you do is, again, just not realistic....

  • Realtor · Minneapolis, MN · Member since 2016 · 245 posts · 107 votes
    8y

    @Account Closed Hey James, I think the pain you're feeling is totally normal. These things happen and **** happens. Don't beat yourself up too much because you can't control most things in the world.  If you stay the course and take this as a learning lesson the $7,300 is well worth the education. If you accept defeat and just get pissed this will all be in vain.  You'll be much better moving forward because of this even though it is really sucky. I believe those who stay positive and persevere through that bad parts will win! Keep going down the path, it will be rocky at times.  Hit me up if you ever want to talk about the Iowa, Omaha, or Minneapolis markets or anything real estate related. 

    GOOD LUCK OUT THERE :-)

  • Rental Property Investor · Brooklyn, NY · Member since 2013 · 272 posts · 165 votes
    8y

    This thread was painful to read.  Hoping it all works out!  

    Recommend (to any other starters) that for your first venture into RE investment -  if you can't invest close to where you live -  then at least invest within 90 -120 mins drive of where you live.   This allows one to become familiar with the process, and the pitfalls to expect. After success here, then one can branch out into other areas. 

    Until then, there's always real-estate crowdfunding to get exposure to the asset class and earn a very respectable return. 

  • Investor · Shakopee, MN · Member since 2017 · 102 posts · 60 votes
    8y
    I hope you have checked out BiggerPockets podcast episode 257. I thought it had invaluable guidance for out of state investing. Really sorry to hear about this sour first experience you’ve had, but I hope it becomes a lesson that will contribute to your success with your next endeavor. My personal experience with inspections is that they catch a little and miss a lot too. I bought a tiny old house in MN last fall (I also live in the Bay Area) and I took a red eye out so I could be there for the inspection. And boy, was I glad I went! Being there live win the inspector gave me 10x more info than his actual written report did. I took notes the entire time, and he told me to think about a lot of stuff that he didn’t actually put in the report — helpful things, like how much I should expect for certain repairs and what the norms are for the area. Stuff he wouldn’t actually put in writing. For example, the inspector noticed the sewage main line may have leaked in the past and he was able to ballpark the replacement cost — it was a great framework when I spoke to plumbers about it, AND I was able to use it as one of the reasons to negotiate additional seller-paid closing costs. If I had gotten just the written report, I wouldn’t have gotten that number to discuss with my realtor. The inspector also missed a lot of things — like the electrical was way worse than he’d reported, and he was off about some basement leakage issues. But because I walked through the house with him and heard his reasoning and methodology, I wasn’t upset; he pointed out enough to prepare me! The rest is just stuff I need to deal with. (Like the furnace stopping at 8pm when it’s -8 degrees out on Monday night — yikes!) Because of these experiences I’ve decided that I’m ALWAYS going to be present for inspections — or at least for my first couple dozen properties (so I learn more and can get a better team). The silver lining is that even when money is lost, there’s always experience to be gained.
  • Fairway, KS · Member since 2018 · 82 posts · 28 votes
    8y

    I think in your situation it shows that you could have had a better chance buying an occupied property, maybe one that is rented for a longer term than a few months and the inspections wouldn't have mattered and you might have room to improve the numbers.  These are a few more thoughts no had mentioned.. If you continue down the road of getting more property try to be creative in putting a deal together.. Find places that aren't even on the market yet. This kind of work would require you to be present, not remote. Maybe you could even come up with something in your bay area. Don't be afraid if the numbers don't add up if you are getting a tax break that make it work at tax time ( you said you had a good income)

  • Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    8y

    I guess it could have gone better or much worse. Hopefully, it is in a sweet location that gets good tenants and is easy to self manage. If that is the case the extra 1.5% will not be too big of a deal over time. 

    I know of a guy with a 1000 units and he still shows up for the inspections. There would be a host of reasons why, like mentioned above, understanding future expenses and for negotiation purposes...or just to be able to know when to walk away. 

    Good luck!

  • El Cerrito, CA · Member since 2015 · 257 posts · 129 votes
    8y
    Originally posted by @Gregory Storm:

    Hello @Account Closed,

    I'm going to push back on the idea that you can't invest in the Bay area.  Oakland is extremely affordable compared to Mountain View and Palo Alto or some other places in the Valley.  I would also look at San Jose and Freemont, Union City and Hayward.

    Since you now have renters and have created an income producing property with all the new fixes you've had to make, you have also increased the value for another buyer.  Maybe you should sell this Austin property to relieve your stress levels and buy something closer to home that produces better income?

     Extremely affordable COMPARED to Mountain View and Palo Alto yes, but I don't think you're going to find a duplex in decent condition and neighborhood for what the OP paid for his ($430k or whatever it was). 

  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    8y
    Originally posted by @James C.:

    James, 

    Is this typical?  Not usually. 

    That being said, there were a few things that you could have done better. Your have stated some of them, but let me see if I can give you some ideas to fix them.

    1) You didn't mention anything about the numbers.  First and foremost the deal has to cashflow. At 435k you need to rent each side for 2200 to even think about breaking even,  especially in a high property tax state like TX. Don't buy the BS about sub 1% and appreciation. If it don't cashflow don't buy it. Quite frankly if you are having to put out 3 years of profit on 7300, of expenses,  the deal sucks.

    2) 5k for an electrical panel in a completely renovated 420k Duplex is completely untenable. At that price point, the property should have NOTHING wrong with it. Add to that the missing garbage disposal outlet. That is a good sign of someone who doesn't know how to do a punchlist for renovations. In the future come up with a checklist  (read The Checklist Manafesto) and make sure you check EVERYTHING on it. Which leads me to point 3.

    If you are investing out of state, and don't have excellent support,  cart your butt there and meet them. You did this deal entirely from your chair in CA. You've never been to Austin for any reason. I don't buy the BS that you can invest in a location without ever having been there. So for the price of a plane ticket and 2 to 3 nights hotel, let's say 1500 bucks you risked 110k of your own money on a 440k deal. Save 1500 (10% of your hard earned cash) to lose, what another 7300? Next time slow down, spend the dough to go see the place and establish the relationships to truly make it work.

    Finally, stop the pitty party.  Stop feeling defeated and taken advantage of. Watch spending money on an attorney. Both the agent and the inspector have no liability no matter what they have said. You signed a document that absolved the inspector of any liability and the broker is not responsible for the condition of the property,  only the purchase and sale portion of the deal. Plus,  they were probably a sellers agent, with no fiduciary responsibly to you.

    Look, I'm not trying to rub salt in your already open wounds. What I am saying is that most  of this is preventable. Stop focusing on "I have to invest in Real Estate" and focus on "Is this real estate a good business/ investment decision". Get back to basics.

    Stay out of multiple offer situations when you first start, and for good measure stay the heck out of "hot" markets. You got creamed because you got in over your head. 20k over on something that doesn't cashflow properly is an impulse purchase not a level headed business decision. 

    I would take my next long weekend in Austin,  find an excellent inspector (lose the entire group you are dealing with now) and spend 2 to 3 hours going over the house from top to bottom and getting to know the property. Once you know what you are in for, then you can decide if you want to keep it or dump it. 

    FWIW, I bought a SFR 4 months ago, and just had to put a new AC in. Completely my mistake for not insisting that it be pulled apart and looked at. The roof I know about (2 years max before replacement), but was blindsided by the AC. I won't make that mistake again.

    You will do just fine in the future. Everyone effs up a deal. You got yours out of the way sooner than others. Keep plugging along, you'll get it. 

    Hope that helps. 

    Good luck, 

    Jim 

     ^^This. Absolutely everything Jim says here.

    Yes, this lesson sucks. I'm sorry you have to learn it the hard way, and I'm thankful you shared it with the rest of us. I hope that someone learns from your mistakes so they don't make them.

    Rule #1 of out of state investing. Hop on a plane to check out the area and the property. Southwest flies everywhere for less than $500 round trip. 

    (This part sounds harsh, and I don't mean it to be harsh.) If you can't afford a ~$500 plane trip, you can't afford to be investing.

    There is no shortage of bad real estate agents out there. The barrier to entry is ridiculously low. If you feel your agent misled you, report them to the state real estate commission. 

  • Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes
    8y

    @Marcus Johnson

    I'm with Marcus, I not only find and go in lots of properties via MLS feed, I buy, renovate, rent, and manage all of my properties. I've expanded my territory so I buy properties up to 4 miles from my house now which is still only a 10 minute drive. I live in South Minneapolis and there is a lot to choose from near me so I don't even look at the suburbs. Because all of my properties are close, I'm at, around, and through them weekly.

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