Posted over 3 years ago

Turning a ZERO into a WINNER - my riskiest investment EVER!

This is my first blog post on BP and while trying to think about what I could possibly share that would be most helpful to other investors, I started thinking back to my first experience in real estate and how this may be a great lesson. My very first transaction in real estate was definitely my riskiest investment ever and boy have I learned some lessons.  

I had just attended a weekend long real estate seminar in Vegas back in September of 2014 and after all the great information we received, I was highly motivated to get after it and land myself a deal. I had some money saved that I could use for a potential flip or rental property if the opportunity was right. 

At the seminar, there were many companies there ranging from real estate attorneys, tax offices that specialized in working with real estate investors and real estate investment companies that bought and sold real estate. We decided to check out the real estate investment company and see what they had to offer. They were advertising rentals for sale all across the country that were fully rented and sold at competitive prices. (So they say)

We looked through numerous rental properties and after browsing through their single families, we wanted to see what multi family options were available to try and maximize our investment. We were told a duplex had just come on the market in Warren, MI and already had tenants inhabiting both sides. I was excited about the opportunity but a little nervous as this could potentially be our very first real estate investment and the biggest purchase of my life. 

I was not the savviest investor and believe me, I still had very much to learn about real estate but I tried to ask all the right questions and get as much information on the property as possible seeing that we would be buying a property completely sight unseen. I asked to look at comps which the representative I spoke to assured he would later email to me. I was told the the property was being sold for $70,800 and had rents of $1,000 monthly. As Brandon Turner always talks about, you HAVE TO run your numbers. I looked at what the price was and saw that the rents were over 1% of the purchase price so I thought I was ok.  (This is before I started listening to BP)  After taLking it over with my boyfriend, we didn't want to be those investors who would just attend seminars and meetings and never pull the trigger on something. So we decided to do it!

 We had just established an LLC a day earlier through one of the companies at the seminar and so I had almost everything I needed in order to make the purchase. The only financing available at the seminar was through a hard money lender that would offer a 3 yr loan at 12% interest with interest only paymentS. The loan would require a 20% down payment which I had. We wrote the check that day, signed the paperwork to have an agent represent us at the closing as we lived in Dallas and just waited until we received word that we had closed. 

Many of you might be thinking, Wow, what did you all do? You bought a property sight unseen, are going by what these people told you and didn't even run your numbers longer than 5 minutes to see if this was even a good deal. YOU ARE RIGHT!

We received our closing documents a month later in October and started receiving documents from the property manager for all the paper work we'd have to fill out to submit to the state as well as get our banking information set up for rent collection. When we first set up with the management company, it took a few months for us to see any rents at all and not having any experience, I thought this was normal as we were the new owners taking over but after the third month, I reached out and started asking questions. I finally started receiving rent payments for the property so things seemed to be going ok and I think question anything really after that. 

Part of the documents we received were documents that needed to be submitted to the city so they could conduct an inspection and make sure we weren't slum lords. DThe documents were submitted by the management company and we received a date for a month later or so for the inspection. The inspection was completed on the duplex and both inspections failed! I received a letter saying that the entire residence was infested with roaches!! To my disbelief, I then later stopped receiving rent payments as the management company told me that they believed the tenants had moved out. What? Are you serious?? You believe they moved out?

This wasn't a property management company that we had chosen mind you. They had already been managing the property when we purchased it and just continued to do so when we took over, us not knowing that they were one of the worst managers we had ever heard of. We thought to ourselves, this company seems like they pay no attention whatsoever to these rental properties. How could they not know the place was infested with roaches and then not know that the tenants had decided to move out? I was DONE with it!!! I fired them immediately and started looking on home advisor for a property manager I could use in the area and actually got lucky because I picked a great company where I know the owner personally, he calls me if there are issues and they truly care and want to help. 

The next course of action was getting rid of the roaches and making sure this place could be rent ready. I did some research and started a one year long contract with Orkin to come spray at the rental property every month to get rid of this problem. When orkin got there, they called me and told me this has to be one of the worst infestations they have ever seen. Roaches dont just pop up from one day to the next so this must have been going on for quite some time yet none of this information was disclosed when I purchased it or displayed in the pictures when it was being advertised. I learned a very important lesson, you cant take peoples word when it comes to anything, specially when you are purchasing a property site un-seen and your being told it's rent ready. Perhaps when you become a more experienced investor it's not really a big deal because you've factored in your numbers so you can make any needed improvements but what made this worse is that I was hundreds of miles away and had to rely on just pictures, text messages and phone calls from the people that were actually there to witness everything. 

This was officially a horrible investment. I had just collected a couple months rent, both units were now vacant and I was having to have the home sprayed every month for the roach infestation. While all of this was going on, I needed to completely clean up the place and get rid of all the nastiness in there. I hired my property manager to replace any and all carpet, paint both units, and replace/fix holes, any damages and make sure the plumbing was running correctly. At this point, I've owned the property for about a year and have never seen it in person so I decided to fly out there for a weekend. I got to meet my property manager in person and he seemed like a great guy. I got a lot done that weekend. I went shopping for new appliances for both units and had new stoves and refrigerators delivered. Things were starting to look good. We were about halfway into the orkin contract and there were little to no signs of roaches at all. Both units were finally ready to rent and we had finally passed inspection from the city. 

My property manager started advertising the property and he received a lot of interest. We were just a few minutes down the road from 8-mile near Detroit and I was a little nervous about the type of tenants we would have. My property manager did some digging and after a couple weeks, we finally had both sides rented. Another issue I ran into is that when the property was built, it must have been a single family home as there was only one water line running through the whole house and nothing was separated. I was not able to have the tenants pay for their own separate water bills so I had to do it. This was not an expense I had initially included with the first set of tenants we had but I knew for next time around, I needed to charge each side a certain amount per water monthly so I would have to deduct that from the actual rent they were paying. I also made sure that because this payment was for water and not rent, I had my property manager not count it towards the overall rent they would charge their 10% from. So for those I may have lost, my property manager only charge his 10% fee on whatever was actually rent and keep whatever portion for water that the tenant was paying separate so I could receive that in full. 

The same applied with other expenses such as lawn maintenance/snow removal. Just like water, this was an expense I had to cover and I wanted to cover it just so I knew it would get paid. I then included another portion to the rent that was to cover lawn maintenance/snow removal as well. It's certainly been a learning process for me and most of it through first hand experience with all the dumb mistakes. One of the biggest mistakes as well is that after finally sitting down and reviewing what the property was actually worth and the comps looked like that I was emailed, I had definitely over payed for the house. Being the person that I am though, I was not going to give up on it and I stayed with it. 

Since my purchase,  I've seen numerous webinars on the BP site that talk exactly about the things I've experienced and I wish I had run into this site years ago. Although it has taken a couple of years,  I've managed to turn this from a zero to something. The reason I only say something is because I am still learning and I know there are things I can do better. There are still lessons I need to learn and I can certainly make this rental more profitable. The best way to learn sometimes though are through your own experiences as well as other people.  Here are a couple of things to keep in mind when looking at out of state rentals that I learned: 

1. If you are not familiar with the area and valuations, work with a real estate agent so you know if you are over paying for the property or if this is actually a good deal

2. If you are not able to view the property, have an agent or someone that you can trust go and view it for you to make sure that it is as advertised and everything is working properly

3. If the rental is already rented and has a property manager, do some homework on them and make sure they are everything you need them to be - you are hundred of miles away after all, you want to make sure they can be trusted 

4. Really do your numbers - there are webinars that break down how to make sure you are calculating your rent price correctly in order to make sure you are actually making money monthly on this investment

5. When in doubt, run away - if the numbers dont work they way you need them to and its not going to yield you as much as you are looking for and price cant be negotiated - dont be afraid to walk away and say this one is not for you. It's better to have no properties than one that's going to create numerous problems for you. Investors often times feel that they need to make a quick decision on something or feel that they need to buy something because they haven't worked on anything in a while or anything yet, so they jump on the first thing presented to them. Take your time. 

Although this rental is finally producing some income as I'm charging enough to cover the note payment, monthly maintenance, utilities etc, it's been a grind and taken quite some time. I'm just glad I didn't give up on it. Had I had to do it all over though, I cant say I would buy this property again knowing everything I know now. It took a long time to get to where I needed it to be and frankly, I could have used the money to purchase other properties and perhaps do some flips and made more money over the last few years. In hindsight, I have learned so many valuable lessons now that have made me a better investor and landlord and thus I think, a lot more prepared to handle any future rental properties. Again, it all comes down to doing your homework and making an informed decision. It's also always better to learn from other peoples experiences so hopefully you can learn from mine. 

Comments (5)

  1. Thank you for taking the time to write this experience down and being honest about the experience. I can only imagine how many valuable lessons were learned that will pay off HUGE in the long run. 

  2. Thank you for taking the time to write this experience down and being honest about the experience. I can only image how many valuable lessons were learned that will pay off HUGE in the long run. 

  3. This is an incredible story! You have the opposite of "analysis paralysis". Great points for long distance investing.

  4. Wow, great story!  Glad it worked out in the end for you.

  5. Thanks for sharing your experience.  Glad you came out ok.