First Deal: Countless mistakes = lessons learns

5 Replies

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Los Angeles.

Purchase price: $475,000
Cash invested: $350,000

This is probably every RE investor's worst nightmare, we made every mistake but we also learned invaluable lessons. The good thing was that we both have very good jobs, high savings, and supportive families and network of people that really helped us out along the way. My husband and I purchased our first property June 2018. It used to be a 2-bed/2-bath side-by-side duplex and now it looks like a 3-bed/2bath front unit, 1-bed/1-bath rear unit, and 2-bed/2baths rear unit (our unit). All rented.

What made you interested in investing in this type of deal?

We were interested in a duplex, or small multi-family, because it would help us with mortgage and the rental income from the other unit helped us in getting a loan for the property. Everything in Los Angeles is so expensive, you need to make at least $100,000 to even qualify for a mortgage. Rental income definitely helped.

How did you find this deal and how did you negotiate it?

We found the deal on the MLS and we hired a real estate agent (the sweetest woman) that we found at another open house. At that time nobody was representing us. They were asking $540,000 for it but the agent knew the area very well and knew right away it was over-priced and had been sitting in the market for months. So we negotiated down to $475,000 based on time on the MLS & repairs.

How did you finance this deal?

We used conventional financing, 15% down.

How did you add value to the deal?

We basically built a new house in its place by re-building the first floor in place, adding a second floor, and a 3rd unit.

What was the outcome?

A lot of knowledge in construction and managing it, a beautiful triplex that seems to be the neighborhood pride. We get so many compliments all the time by our neighbors, and courage in jumping into real estate and learning as we go.

Lessons learned? Challenges?

Do our due diligence more rigorously, shop around for loans, find creative financing, be better at negotiating the price, be better at running rehab costs, learn how to manage your contractor, use the BP calculators (although making them work in LA is tough!).

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

If you're in the LA area, we know a lot of contractors and sub-contractors. We both work in the design & construction industries.

@Wei Cho

Sorry to hear your first deal didn't go so well. Don't give up! If you stop now, all those lessons you just learned will be for nothing.

Please do share some of the problems you ran into with your deal. It sounds like your vision for this property was too ambitious?

@Geordy Rostad @Aikane Belez Thank you both for your replies. My vision for the property was only to do a light remodel and to live in one unit and rent out the other asap. However, we wanted to remodel our unit with a courtyard (literally cut a hole on the roof to make it an exterior space. As soon as we started taking down drywall, we saw the terrible condition of the studs and then the rest is history. We thought long and hard whether we should just patch it up and pretend it wasn't there, or demo everything and build it right. We went with the latter, which gave us the opportunity to design and build our first house pretty early in our careers (most architects and designers don't get to live in their own designed home.)

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