If you listened to the most recent BiggerPockets Podcast episode with my good friend Ben Leybovich (If not… click here and listen) you’ll recognize the word “Waldo” being tossed around quite frequently.
For those who don’t remember, “Waldo” is the nickname Ben Leybovich gave my recent triplex that I talked about in How I Found, Analyzed, and Bought an Ugly Purple Rental Property. Ben affectionately named it “Waldo” (in this article) because it stood out in a crowd, much like the beloved cartoon character Waldo who hides among the masses but stands out once you recognize his shirt.
I truly believe this “Waldo” discussion is important for new investors to hear, because it’s something that most people never would. It’s no secret that I’m a huge fan of the BiggerPockets Podcasts. Yes, I’m biased because I’m the co-host, but the fact is: the information discussed is far better than books, seminars, TV shows, or other forms of education people take. This is real life stuff, that real life investors are dealing with.
Therefore, although much of the Podcast may have felt like “Ben bashing Waldo” I want to be clear that I LOVE this discussion. Whether or not you are Team Brandon or Team Ben – the fact is, because this discussion is happening, YOU are growing as an investor. I’m growing as an investor. Ben is growing as an investor. That’s what BiggerPockets is all about – growth through community.
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
So what, exactly, is Ben’s beef with “Waldo?”
I believe it can be best summarized as:
The property is “non conforming” – meaning it’s not a traditional normal property because it was designed as a single family house and later converted to a triplex, which can lead to large unforeseen problems. Therefore, newbies should not buy properties like this because it contains a greater degree of risk.
Where Ben Is Absolutely Right
As I mentioned on the Podcast, I’ve definitely blown my budget on the property.
When I first bought the property, I wrote that article “How I Found, Analyzed, and Bought an Ugly Purple Rental Property” and in it, stated:
“My total estimates for repairs are about $5,000, most to fix the chimney leak, fix the drywall, paint the windows, and clean. This might be a little light, and I’m prepared to spend up to $10,000 if needed, but $5,000 will get it rented now.”
In reality, I’ve now spent closer to $14,000 on the property.
So what went wrong?
A few things:
1.) Difficult Contractor – I’m not shy about talking about my difficulties with contractors in my area. I tried out a new contractor on this project, got a bid ahead of time, and let him start work. What was supposed to be a two week job turned into a six week job, which lead to some increased holding costs, adding roughly $1000 to the costs.
2.) The Plumbing – As I mentioned on the recent Podcast, plumbing was probably the most expensive fix. You see, we rented the basement apartment out for $525 a month to a nice young couple who loved the place. At first we didn’t notice many problems… but once we started doing some work to the main house (upstairs) we began to get calls about the water draining REALLY slowly. We hired a plumber twice to come out and try and rooter the drain, and both times it cleared and was fine. For a day or two. Then another phone call. Finally, I called another – more expensive – plumber. He put a camera down the drain and discovered large, potato-sized rocks. Looks like whoever was being foreclosed upon wasn’t too happy and flushed some rocks. We cleared that, and all was well.
3.) Additional Work – In addition to the above plumbing problems, I also notice that the water was flowing kinda slow to the upstairs bathroom, which was due to the old galvanized pipes going to that bathroom (rust tends to build up.) I could have left it… but I was inspired by the podcast we did with Darren Sager who mentioned always going the extra mile at the beginning to make things so you don’t have to fix it in the future. So I spent a Sunday afternoon running new Pex water lines to the upstairs bathroom. I could have hired a plumber for $500 to do this, but I don’t mind doing this work once in a while. There were also some other updates we did, like some painting downstairs and some new light fixtures, that added to the budget.
So what was Ben right about?
An old property, that’s not totally normal, is going to have hidden surprises. And there definitely was some unexpected repairs in this property.
So Ben… you were right about that.
Why “Waldo” is My Best Friend
So, at this point, I’ve spent a little more than I wanted to on the triplex. Two of the units are rented,and the third should be rented by this weekend if all goes well. At this point, I will be bringing in $1945 in income, and providing $594.22 in cash flow.
Furthermore, this cash flow doesn’t include the $233.40 that I factored in for property management which, at the current time, I’m managing myself. Which means right now – I’m expecting to cash flow about $827.62 per month after all the expenses are paid out.
The following is the results page from the BiggerPockets Rental Property Calculator to show what the numbers look like:
Should a Newbie Buy Waldo?
Ben’s point was never “Brandon shouldn’t have bought Waldo.” He’s said it many times before – I will do just fine with Waldo.
Ben’s point, however, was that new real estate investors should not buy something like this because of the increased risk.
This is where Ben and I differ.
I believe, if the numbers make sense, a newbie can buy something like this triplex and succeed. Yes, this property had some extra issues. Yes this property has given me some headaches. Yes this property will cost more money this year to get finished.
This property will provide INCREDIBLE cash flow.
For a real estate investor, cash flow is the best medicine. (Tweet This!)
Now, should every new investor rush out to buy something like this?
If you are broke – don’t buy this (don’t buy anything. Get control of your finances and build up some reserves first.)
If you are afraid of some stress up front? Then don’t buy it. Stick to your mutual funds earning 8% and watch your soaps.
But if you are looking to get into the real estate investing game, don’t be afraid of a little work, a little stress, and little risk.
If you wait around for the perfect property, you’ll wake up some day at 75 years old and wonder why you never jumped in. There is no perfect property, at least not one that provides this kind of cash flow.
If a new investor had been in my shoes and purchased this property, they would have gone over budget by $10,000 perhaps. They would have needed to spend some time seriously contemplating how to come up with that money. They may have had to call in some favors, work the weekend, pick up a second shift delivering pizzas. Whatever.
It would have been hard.
It would have been stressful.
And in the end… they would be a real estate investor.
The $10,000 lesson would have taught them more than 4 years of college never could. More than $50,000 on a guru course could ever hope to. More than all the blog posts and podcasts and forum discussions ever could.
Finally, to be honest, a newbie should have done better on this property than I did because they should spend more time getting proper bids and inspections than I did. I didn’t even turn the water on during my inspection because I knew I could handle whatever came my way – as I did. I don’t recommend this for newbies. However, I’ve done this enough to know that even the worst plumbing problems can be fixed, and the deal was so good that I knew it wouldn’t have made a difference to me buying it or not.
Ben Leybovich is one of the smartest guys I know – and one of the best real estate investors I’ve ever had the privilege of speaking with. He’s also one of my best friends and one of my closest advisors – so I respect his opinion above almost everyone else.
However, I believe the public needs to see both sides of the “Waldo” story and why I don’t regret a single penny of this purchase. I titled this post “Let’s Get One Thing Straight About Waldo” – and although you may think I’ve said a lot more than one, I believe it can best be summed up with one simple line:
There is no “right” investment for everyone, but there may be a “wrong” investment for you. (Tweet This!)
This property would not fit within Ben’s business model. It would be wrong for him.
Maybe it’s wrong for you.
However, it fits perfectly within my business model and was very-much “right” for me.
Maybe it’s right for you.
Only you can answer that question. It is my hope that this good-natured debate has opened your mind to new ways of thinking.
I don’t care if you think I’m right or think I’m wrong. I only care that you think.
(This is the part of the post where you chime in … and let me know your thoughts. Are you Team Brandon or Team Ben? Let me know in the comments below!)