BiggerPockets is the best resource online for start up real estate investors – it works. New investors can learn through the articles on the Blog, and by asking questions and communicating with experienced players on the forums. It’s incredible the value that is here indeed!
Today I have a treat for you. Two days ago I received an email from a fellow BPer named William. He is a new investor who has benefited from all that BP has to offer. I received his permission to share the contents of his email with you, because I think that his experiences in his own words should serve as a heck of a learning opportunity for you guys, as well as a great motivation – if he can do it, so can you! Read this carefully; there are a lot of nuggets of valuable information in Williams account of his experiences:
BEGINNING OF EMAIL (I’ve done very minor editing to this)……….
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My First Deal!
I added you on LinkedIn a month or so ago and told you I was working on my first deal and you wanted to know the details. So sure enough, I wanted to give a shout out to you (most of all) and BiggerPockets for helping me with the knowledge to close my first deal. It was not easy (at all) and was drama filled. There were more hoops to jump through than a circus act and I just felt like I had to share with you.
Forgive me for the length, this got crazy long but it’s the full story of the saga of my first real estate deal.
A little background to my situation for reference, I’m a recent college graduate (May 2012) lucky enough to find a career in my field of study. I live in GA.
I had been searching MLS for a while and wasn’t having much luck. I had put in some offers, but I didn’t get accepted. I had my criteria…I wanted to owner/occupy. I wanted at least a triplex, aiming for a quad-plex, It needed to be in mostly turnkey shape, and it needed to be less than 20min from my work. Pretty tight criteria in a market like Atlanta’s that is in an upswing.
I got lucky, looking through Trulia I found a Coldwell Banker listing for a triplex that was not listed on MLS. It fit all my criteria. It even has a brand new roof and two of the units had long term tenants. I was so excited! They wanted 93k and after running the numbers in my excel sheet, Id be netting over $100 a door at that price with me living there! I made an appointment to see it and drove by it later on my own and made an offer of 93k. I got word back a day later that another potential buyer was interested and they wanted us to go look at it and resubmit a final offer. I went and checked it out and wow was it in great shape, I came to find out later that the owners had owned the property for almost 30 years and has just sunk 20k into renovating it. I found the highest I wanted to bid was 97k with seller contributing 5k into closing costs, so I resubmitted and waited…
That weekend I got a call…my offer of 97k had been accepted! I was over the moon. I thought “Well the hard part is over now, smooth sailing.” Oh wow was I wrong.
Now it gets serious – I had to start doling out nonrefundable money. Because I was low on capital, I elected to get an FHA loan, so an FHA appraisal is necessary. I spent $700 on an FHA appraisal and $300 on a professional home inspection. Home inspection comes back, minor leaks, minor electrical issues, its a 1960’s era home, that’s expected, but everything major is in great shape. I thought to myself, “Okay, two of the units are getting $630/mo and the other is getting $450/mo and the place is in great shape, it HAS to get appraised at my asking price.”
FHA Appraiser comes back and appraised it at 83K!!! Apparently the 3rd unit was converted from a basement and they never got the property rezoned, so legally it was only a duplex so the appraiser couldn’t count the third units income. I was devastated….were they going to back out? I had already spent $1000 I couldn’t get back. I was just hoping the seller would come down…
Around this time I find out that the seller isn’t just one person, its a father/daughter combo that owns 80%/20% respectively. The daughter had been maintaining it and was very reasonable. The father turns out to be a hardball tax attorney that doesn’t compromise. He dropped his price to 89k with no sellers contributions and as-is.
This put tremendous financial strain on me because now it goes from me needing $4k to close to me needing $10k to close. I didn’t know how I was going to do it and was really upset. My family is not very well off so it wasn’t like I could just ask my mom and dad for seven thousand dollars.
After exhausting all my options. I worked out a deal with my aunt and she basically gifted me the money to fill the gap.
So now I had my financing covered! They accepted and signed the amendment for the reduced price of 89k! All is clear, right?
See the tax attorney 80% owning father wanted to sell the property under this general partnership entity that he formed with his daughter to shield himself from the majority of the taxes. When he found out he couldn’t do this because the title of the deed was in his and his daughters actual name’s, he threatened to back out. I had to have the closing attorney remind him that he is in a binding agreement and opens himself up to get sued by me before he would drop it and move forward!
Fast forward a week to two days before closing (which had gotten pushed back three times), I get a call from my loan officer that the FHA appraiser isn’t respecting my home inspector’s report on the heating units in the property and I would have to pay an HVAC guy to come out and write a report saying they verify the baseboard heating units are working and aren’t a fire hazard because he “smelled an odor coming from one of the units”. So I dole out another $160 dollars and get that done in a panic.
Then I get a call THE DAY BEFORE CLOSING that I had to replace the locks on two of the windows and replace a spacer on one of the breaker panels or else they wouldn’t fund the loan….were talking $10 dollars in repairs…so I dash to Lowe’s get the fix, and send pictures.
FINALLY! We close just this past Friday and I feel like such a burden has been lifted off my shoulders. It feels great to own my own home and being paid and making a profit from living here. Your knowledge you shared here really helped me out and I wanted to recognize you for that. It’s not as easy as it seems and I’m just glad I stuck it out instead of walking away.
With my roommate moving in with me next month I’m expecting to net around $400 after putting %10 gross into maintenance reserves. I don’t think that’s bad for an owner occupied triplex! You’re the man.
Thanks Ben and thank you BP!
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BiggerPockets is the best resource on the internet for a start-up investor. If you are a new investor, and you came to BP to get help on your first, second, or third deal and you are not seeing results like William – you are not using BiggerPockets the right way. It’s all here – learn and go get it done!
Photo Credit: nickcummins