The $750 Newbie Lesson We Learned Before Landing Our First Investment Property

by | BiggerPockets.com

If you will recall, in the last article, we had figured out our first round of funding via a HELOC on our primary residence. Now that we had that, it was time to start looking and find our first property. We were beyond excited because this was our first foray into a whole new world. Luckily or unluckily, however you choose to look at things, we learned our first investing lesson right out of the gate.

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Why We Chose This Particular Market

Our first step was to reach out to my real estate agent, who is a very integral part of the team we are creating, to inform her that we had the funding and were ready to go. She was more than happy to help, even though the target market we are looking at is about an hour away from us. We targeted this market for a few reasons:

  • It is still close enough to us so that we can stop by and check on properties randomly.
  • The buy-in rate is much lower than where we currently live.
  • There is a military base, a VA hospital, and a university (which means that we have multiple avatars).
  • The ROI is higher than where we currently reside.

Site Unseen

A lot of investors that I have spoken with purchase properties “site unseen” and go based on pictures, disclosures, and gut instinct. We are a little bit more nervous about this style of purchasing because I have seen a lot of houses that certainly are not my cup of tea. But we were willing to take a risk if the right deal presented itself.

On this note, we went to this city multiple times looking at properties. We didn’t find anything on our first few trips that would suit our needs. This is primarily because we are interested in buy and hold only right now. While we are open to doing minor repairs to get the property rent-ready, we are not open to total rehab—nor are we fix and flippers. Each investor has their own style, and we have chosen to be buy and hold investors.

Related: Newbie Investors: Here’s the Truth You NEED to Know About $30k Properties

First Property

So, after these first few trips, we ended up finding a property that had been on the market for a little while. We didn’t look at it on any of our trips because it was over the price point we’d been targeting. However, the seller lowered it enough to fall within our parameters, thereby triggering our interest. The pictures all looked really good, and the area of town was decent, so it seemed like a good choice.

The price reduction apparently triggered a bidding war amongst investors, so we threw our hat into the mix. Because we were willing to close when they needed and we were cash buyers, we won the bid!

But, this was completely site unseen.

We had two weeks from the time that we went under contract until we closed, and we wanted to get an inspection and see the property first. Our inspector (another integral part of our team!) agreed to go down there to do the inspection. I planned to meet him, along with the property manager I was considering, while he was down there.

Our First Investing Mistake

Upon arrival, the outside appeared to be as advertised. The inside, however, was a completely different story.

This property looked NOTHING like the pictures!

It was an older house, so there was plenty of potential to make it something really great. However, that would take somewhere between $40-50k—and that was NOT in our budget.

Not only that, but we aren’t interested in fixing and/or rehabbing a property. That is not the business model we decided upon.

I spoke with my inspector and the property manager, and we were all in agreement that this property was not as advertised. I would simply have to pull out of the deal. The only way I could stay in would be if they reduced it to almost nothing and basically gave it to us, but I would still have to fix it. And we simply had no desire to do that.

What We Lost

By pulling out of the deal, we were out the $500 due diligence that we paid. However, in my opinion since this house was not as advertised at all, that should’ve been returned. But I am told that isn’t how it works. Still, I think it should be because what they did was just downright sneaky!

And on top of that, we were out the fee for my inspector. On the up side, since he is such a nice guy, he agree to cut the fee for us. This is because he didn’t have to actually write up the report, so less overall work was required of him. But he still needed to be paid for his time to go down there and do the inspection, which I understood.

Even with him reducing his fee though, we are still out $750—all for an investment property that wasn’t even within our set parameters, all because we went under contract site unseen.

Needless to say, we are not pleased and a bit stung.



Related: 5 Habits of Highly Miserable New Real Estate Investors (& How to Kick Them!)

Learning from Our Mistake

We try to learn from our mistakes so that we don’t repeat them. What we learned is that we just cannot purchase a property site unseen, like many other investors do. We simply just have to take the time to actually walk the property before we put an offer in.

After all, these properties are supposed to be long-term investments for us, and we want them to be good, stable properties in highly rentable areas. So, we are just going to have to put in more legwork on the front end to ensure that is the case. And if that means driving down there to go take a look at a bunch of properties at once, then so be it. I would rather spend the money on the gas as opposed to losing another small chunk of change.

We know that this lesson will stick with us long-term. But we are hoping that with more time and experience, we will become more comfortable purchasing site unseen. This is because we know that it can help us create a better overall investment portfolio.

We just aren’t there yet in our investment journey. So, for now, we will continue to walk the potential properties first to avoid making another $750 investing lesson.

Have you tried your luck buying site unseen properties? How has it worked out for you?

Let’s chat below.

About Author

Shanah Bell

Shanah and her partner Bryan are buy and hold real estate investors in the NC market. They own BellBert Investments, LLC (contact: [email protected]) and are always looking for new ways to creatively fund properties. By trade, Shanah is a Holistic Health Advisor with a Master’s Degree of Nutrition who owns Adaptive Nourishment and is the co-owner of Cash Wives ExWives, which is geared towards keeping divorce from killing your finances.

45 Comments

  1. julie o.

    I don’t understand this: “By pulling out of the deal, we were out the $500 due diligence that we paid.” Is it something particular to your location? Here in Colorado, you do have to submit the requested earnest money deposit with your offer, but if you need to cancel the deal before your deadlines, this is returned in full. Typical deadlines for cancellation include inspection deadline and financing deadline. I get having to pay the inspector, but why didn’t you get your $500 back?

      • Will Wiggins

        Then you are doing it wrong? Just bought my first property here in NC. Had multiple exit clauses in the offer to get my EMD back. “Subject to financing, subject to appraising at offer price or better, subject to inspection findings” etc. All of which would have returned my $1,000 EMD back to me.

        It did; however, get credited toward my purchase price at closing as you said.

      • Shanah Bell

        You are correct, Chris. This is common practice in NC for the DD to be money applied towards the purchase at closing. But if you pull out of the deal, you are out of luck with regards to that money. The Earnest Money, was refunded. But ultimately, I just had my Real Estate Attorney hold it in Escrow for the property that we did end up purchasing and he credited it towards that transaction instead.

    • Donna Welschmeyer

      Julie, whether or not you get any of your money back depends on the specific deal and from whom you’re purchasing. I imagine the author is referring to a deal with a wholesaler or something of that nature. Many of the Colorado wholesalers we’ve worked with have a substantial non-refundable fee or earnest money deposit that is lost if you back out of the deal.

      • Shanah Bell

        Donna, I did not deal with a wholesaler on this one. But in NC, the DD is similar in that is is usually non refundable but the ED is, if you back out of the deal. This property was being “sold as is,” so they had a non-refundable DD. I was told after the fact that there was a possibility of adding some sort of clause in our offer to include getting that money back if the property didn’t hold up to the disclosures since it was sight unseen. But either way, lesson learned!

  2. Amy Dan

    Hi, I found your story is encouraging to me because we are kind at similar level in the real estate investment:), but you are ahead of us. We also got a HELOC fund out of our primary residence. But we are still waiting for our first deal. Thanks for sharing your story. That is very helpful to us.

  3. Erik Whiting

    One of the biggest mistakes I see newbie investors make is they try to outsource everything immediately and build a team before they know how to play the game. Due diligence should never be outsourced: for inspections, tenant screening, knowing/complying with local laws and ordinances, etc. I know BiggerPockets has a lot of high-roller investors who talk about building “teams.” Well, that’s great! But how many star-level coaches do you know of that never played the sport? Tick, tock, tick, tock….buzz! None!

    You simply must do your first several deals (I suggest no fewer than 5) pretty much on your own. Yes, you will hire someone like a property inspector, an agent (maybe), and a title agent, but you will shadow that person and then the money you spend is not wasted: rather, you are buying an in-depth education from an expert. This will teach you things you’ll need to know to judge a Pro’s level of competence and hire other Pros down the road.

    To give an example: My first rental property I met the inspector and followed him around for 3 hours…in the attic, under the crawlspace, etc. Maybe I was a little too hands-on–I’m not saying everyone has to put on their coveralls and plow thru 100 feet of spider webs–but I learned quickly how to scope out a house. Since then I haven’t needed to hire an inspector: I know what the big dollar items are and how to find them. 13 years in the biz, and I haven’t been bitten by anything like what you experienced.

    Another example: the first time we evicted a tenant, I requested copies of every piece of paperwork our attorney filed. It cost a few extra bucks for them to copy and email me all the documents, but I was already paying about $250, so what was an extra $5-$10 for copies? I studied everything, learned the process, and now I could evict tenants by myself if I wanted to. I still hire our attorney: I don’t need to waste half a day sitting in court waiting for a tenant to show up and argue for 5 minutes just for the judge to say, “Pay your rent now or be out in 5 days.”

    First things first: make sure you know the ropes. Then build a team. Hire professionals. Seek competent counsel. But do not outsource your judgment and due diligence ever. The best supervisors/leaders I have ever served under are the ones who started in the humblest position and worked their way up, learning the business. We all make mistakes and pay for them. However, as the old cliche’ says, the difference in success and failure is the person who learns from their mistakes. Then it becomes an education vs. a waste of time and resources.

    • Kaan Balimtas

      thumbs up, great value-add comment post! Truly thanks for taking the time to explain all of that. I agree that due diligence shouldn’t be outsourced, but was thinking I must be thinking the wrong way since a lot of posts here are, as you said, about building teams from the get-go and just relying on them. Always wondered, how do people judge quality of the people they bring to inspect, get legal help, etc. Glad to hear that one should really develop their skills, pay attention during the process, not be afraid to ask questions, and understand the aspects and go from there. Thanks Erik!

    • Jennifer Rysdam

      I completely agree. My first purchase was an 8-plex. I got an inspection on it and spent the entire time following him around and seeing what all he looked for. Now I know for future reference what to do in my own inspection of a property BEFORE I purchase. This will save me time and money by avoiding purchasing properties that won’t then pass the professional inspection.
      I do everything that I can for my property. It has saved me so much money.

    • Shanah Bell

      I completely agree with your assessment, Erik. However, I did not outsource the due diligence. I met my inspector at the property and went through it with him, room by room. That is when I knew that I was pulling out of the deal. The mistake that we made was not seeing the property before going under contract, as it was sight unseen. And since we had to put down a DD fee and an EM fee within 24 hours (as per NC law), it was the DD fee that we lost. But we got the EM fee back and applied it towards the real deal that we made a few weeks after that (I am working on that article currently).

      I actually have a background in the building industry, so I am pretty good at finding the big ticket items and a lot of times the even smaller issues. Building a team locally, in Fayetteville, where we are purchasing has been most beneficial since then. That was the other mistake that we made. Not having a local team first. That took me longer to build and I am still working on some of the contractors for bigger things. But I now have a local property manager and agent who is also a real estate investor, so I have found that to be much more beneficial than what I was doing before our first deal. I have definitely learned from this “site unseen” mistake and won’t be making it again!

    • Amen Erik preach it! Out $750 seems to me this investor has no business getting in the business as it is an education. Anything worth doing is worth doing well and this business costs money. I have looked at 100’s of properties / own nearly 50 SFH and would never consider buying anything site unseen. Someone would have to sell me hard on how it can ” create a better overall investment portfolio.”. Happy hunting

  4. Kurt Stresau

    If the property truly was not as advertised, then I would file an Ethics complaint with the local Realtors board. False advertising is still false advertising, and is ethically unacceptable in a professional.

    If it was really egregious, you might actually even be able to sue for it. It’s clearly not worth the money for that, but you might do it as a matter of principle.

    Here in Florida that money would be put in escrow with a title company. If the deal fell apart, the escrow money would be returned. That would be particularly true in the case of false advertising.

    • I would never commit to a property sight unseen. Ever. I live in a high income area, but 30 minutes to an hour away from decent cash flow rentals. Driving out and seeing potential properties is part of my due diligence. About half my purchases are major, major rehabs, so I am looking for foundation problems, grade problems, termite problems, etc. If you want a minor cosmetic rehab, you really cannot rely on realtor pictures for your due diligence. I tend to “cluster” my purchases, that is buy 3 to 4 in one suburb, 3 to 4 the next town over, etc. etc. I can get in my car with a large diet coke and drive by my current rentals and look at a few potential purchases at the same time.

      Shanah, you did the right thing by learning your lesson and chalking it up to experience ( $750 is not a bad amount to pay for a good lesson). Filing for an ethics complaint is a real uphill battle when you had every opportunity to inspect the property yourself or have someone else look at it for you. I am sure this was marketed as is.

      If you ever buy properties off the HUD list, you can bid on the house, get awarded the bid, and then you have 24 hours to submit your earnest money. So you can bid on the house sight unseen for no cost. If you don’t like the property or the condition, you just don’t submit your paperwork or the earnest money.

    • Shanah Bell

      Oh it was definitely false advertising! Whoever took those pictures had a great time with Photo Shop. My EM did get returned, but the DD here in NC does not get returned if you pull out of a deal. If the seller pulls out, then that is a different story and they have to return the funds.

  5. Dave Rav

    Good post. I think it will help many of newbies, especially those waiting on the edge to “jump in” (gotta just do it!).

    I want to add a few comments. First of all, I dont think you “lost” all that much. Could have been thousands or more (plus considerable stress) had you proceeded. You must be (at least somewhat) comfortable with the deal. For many newbies, losing thousands can kick them out of the game completely. So, I like your attitude of learning from this modest mistake.

    Buying site unseen is definite not without risk. You may ok, you may be buying a lemon! And you are correct, pictures dont do properties justice! Today’s cameras and software can really spruce up a perspective on the object (home) and make it look so much better! I have seen this on my OWN properties I have put up for sale or rent. I have been like “Man, that realtor or pro photographer’s pictures really make my property look great!”.

    You must go SEE the problem to get the real feel. Thats not to say you can’t buy without seeing it – but to get the TRUE feel you must go. That gives you so much more information:

    *scent/smell – did someone own a pet? Smoker? Animal urine? –> some of these can cost over $500 to remedy!
    *surroundings – horrible neighbor? very bad eyesore next door? –> these things better impact your offer (i.e. offer LESS).
    *”feel” of the property – investors know what I mean. You can’t really put words to it. Also applicable here is flow/layout of the home. Does the kitchen dump (no pun intended!) off into the bathroom? If so, thats a problem! Your buyer/renter will notice this too

    • Shanah Bell

      I agree wholeheartedly with your comments, Dave. There is nothing like seeing the pictures of a property and then walking into it smelling like cat urine and cigarette smoke. Because we all know that is going to be a nightmare to get out! Or, driving up to a property and seeing bars on the windows and/or barbed wire fences around the majority of properties in the area. There are so many reasons why we have decided we just aren’t comfortable buying sight unseen, and this mistake just reiterates why. Plus, we lost money on this one. Which I really hate!

  6. Carson Wilcox

    seems like having a LOCAL realtor would have solved this in a 5 minute pop in. Having your home town realtor compile houses off MLS and then drive down there with you seems silly. Get a local realtor to do same, and tell him or her you expect them to personaly visit each house and take pictures to send you with the comps package. problem solved.

    • Shanah Bell

      I do have a local Realtor now, who also happens to be my Property Manager. She is also a real estate investor in the same area, so she knows it well and knows what she is talking about. I am still using my “hometown” Realtor to find us properties in Raleigh and Durham, but when it comes to our primary market of Fayetteville, I am sticking with my local Realtor. She has been very helpful when it comes to giving us more beneficial insight into specific neighborhoods and areas as well as is willing to go by properties ahead of time to take a look and see if it is even worth us driving down. So far, this is the best move that we have made in the real estate investing world.

  7. James Cizek

    I will start by saying that I obviously don’t know the particulars of the area you are investing in. With that said, here is how I would handle that situation:
    1) Wait for the professional inspection report
    2) Submit a request that the seller to pay for all repairs.
    3) If they counter with a no, then you counter back with a new offer consisting of the original offer minus repair costs
    4) The seller has the option to counter back
    5) Keep countering with the price you now want to pay
    6) Either the seller agrees, or denies the counter
    7) If the seller denies the counter offer then you get the earnest money back.

    If I am mistaken, somebody please let me know. Also, I am aware that the laws vary from state to state.

    • Shanah Bell

      Thank you for your insight, James. While I agree with your outline, it didn’t work in this case. I met with my inspector at the property and that is when I decided that I was pulling out of the deal. I did get my EM back but not the DD, because that wasn’t the deal here in NC. If I had continued to negotiate with the seller and we got to the point where they didn’t want to accept my offer, then I probably would have gotten my DD back also. In this case, I would have had to offer them $1 for the property because it was that bad! Not only that, but I don’t have a turn crew assembled in Fayetteville yet and the amount of work needed to rehab the property was beyond my scope. My hope is to have a trusted crew to do this kind of work in the near future, should the need arise.

  8. Andrew A.

    I’m 100% for getting properties under contract BEFORE seeing them….but I’ll never pay for an inspection or close the deal without seeing it in person. I’ll order the inspection after I’ve seen it while under contract.

    • Shanah Bell

      It definitely was a mistake. We were moving too fast and the seller wanted a quick close. We just couldn’t make it down there to see the property before the inspection, so I scheduled it for the first time I could get down there. I won’t make that mistake again and I didn’t with the property that we did end up purchasing.

  9. David Etenburn

    First, as others have pointed out, that $750 saved you THOUSANDS! Don’t consider it a waste.

    Second, when I was a real estate agent, not one of my offers went out without a “subject to inspection clause. A good inspector can find stuff you didn’t think of looking; in one case, a house was settling at a pretty rapid rate, and the owner denied it even after we showed them the evidence!!!

    • Shanah Bell

      Oh, I completely understand David! As somebody who used to design trusses and panels, among other things, I am pretty darn familiar with houses. And a good inspector is worth their weight in gold, because sometimes they find things that even I don’t.

      I can tell you that when I purchased my first primary residence I was looking at a property and found blatant evidence of fire in the crawl space that affected a large portion of the floor trusses. The listing agent and seller denied that there was ever a fire there, which was completely crazy to me! Not only do I have experience in the building industry, but I used to be a firefighter also, so it makes me uniquely qualified to spot this kind of stuff. But don’t you just love it when you see something glaringly obvious and they still try to deny it?!

  10. Dan Heuschele

    In my market it is standard practice for investors to submit offers without having an opportunity to see the inside but the earnest money has numerous escapes clauses including a no excuse required escape clause for a certain amount of days.

    If the inside is not available for viewing (which is standard practice in my market) such an escape clause is necessary.

    I understand that practices vary from market to market but I cannot fathom any market where the condition advertised is substantially different than reality where the earnest money is not to be returned.

    I realize that amount of earnest money is quite small but it is the principle of it that it should be returned. In addition, I do not believe it should be mostly your duty to fight this. The escrow should be involved and make a determination. In addition, your realtor should be making your case to the seller’s realtor. If your realtor does not protect your interest then you need to find a better realtor. It is unacceptable that your earnest money is being kept in this case where the property was not as advertised.

    I have pulled out of almost as many offers as I have closed on and have never not received all my earnest money back.

    Good luck

    • Shanah Bell

      I wish that was the case, Dan. I did received the EM back but not the DD, which is standard practice here in North Carolina. I am not entirely sure if my agent just didn’t put the clause in where the DD would have to be returned if the property didn’t measure up or if that was not even an option in this deal since it was sight unseen and being sold “as is.” Either way, I won’t be buying sight unseen again because that solves that problem all the way around.

  11. Jordan Thigpen

    Shanah, I just wanted to say you not only encouraged me in real estate investing, but also in my confidence in Bigger Pockets. For a while I have had this worry; “why is everything on here only about real estate success? Why do I only see home run’s in blogs?” It made me fearful to wade into the investment world. My wife and I hope to buy our first invest property in 2018, and this is what I needed to see. I needed to know that there are normal people on here that are taking risks and learning from failure. Thank you, Shanah! I hope your next investment is not only lucrative, but makes up for the headache of this investment!

    • Shanah Bell

      Thank you, Jordan! I am happy to know that our failure on this one gave you some confidence to dip your toe in the water. Please know that we have learned from it and we did actually end up purchasing our first investment property not long after this. I am working on that article currently, so stay tuned for that one. I can tell you that we definitely go to look at the properties physically now because we simply can’t trust the pictures only and we don’t want to lose any more money. I am looking forward to hearing how your adventure goes this year. Good luck!

  12. Amy A.

    I think when people say they buy “sight unseen” that it actually has been seen by somebody on their team. Next time send the agent in first, no big deal. Even if the photos were accurate, there could have been odors – mold, urine, smoke… that would have killed the deal immediately if you aren’t willing to do any work on the property.

  13. Joe Scaparra

    @Andrew A, Bingo we have a winner. Perfect answer for a fast moving market and it might be a significant factor in landing the deal.

    @Shanah Bell. Your a first time investor and understandably was raring to go. However upfront you wanted an easy no hassle deal. In the big picture losing $750 to avoid a disaster is a really good decision, so don’t beat yourself up.

    I still am somewhat confused when you say you lost your “Due Diligence” money. Not a common term used in real estate. Earnest Money and Option Money are common terms but mean completely different things. Usually you will put up option money to drop out of the deal no reason required. Here in Texas it is very common and usually I offer $100 for ten days to opt out for any reason. That way I know going into the deal that if for any reason I want out all it will cost me is my $100. If I stay in the deal the $100 is credited to the sale.

    A GOOD realtor who should have helped you draw up the contract; should have had some sort of escape cause in your contract. Since you are so new to this investment process, slow down, don’t let people rush you, find a mentor if you can. I like your attitude, you just had a bug hit your windshield, and instead of focusing on the bug and running off the road, you did the right thing and focused on the road, hit the wipers and kept driving down the road…..good for you. Happy Hunting!

    • Shanah Bell

      Thank you for your advice, Joe! I agree that I moved a little too fast without anybody local to help me. I now have that and it has been a game changer. I am still looking for a local mentor but have had a difficult time finding anyone. Although, the local Property Manager that I was directed to (also by one of the investor’s that I met at FinCon) is also a broker and a real estate investor in that market. We have been creating a relationship and seem to be on the same page, so I am hoping that will continue to develop and that I can learn from her. I am always open to suggestions and love to surround myself with people who are smarter than me. So if you know of any investor’s in the Fayetteville, NC market, then please send them my direction!

      And, for the record, I appreciate your bug on the windshield analogy. Nicely done!

  14. Robert A Garcia

    Just because other people want to make the same mistake that you were going to make, the bidding frenzy you mention, doesn’t mean that you are heading down the right track. Also would you buy a used car without driving it? Buying real estate for most people only happens once in a while and should require a little more investment of your time as well as your money.

    • Shanah Bell

      I agree, Robert. In fact, we did end up purchasing a different property but we went down there and looked at quite a few of them. We are also looking for our second property and I am moving slower on this one. We were supposed to go down today to look at approximately 15 properties, but since there is still snow here and the roads aren’t great, we have postponed the trip. My attitude now is that if some of the properties I am interested in are still available, then great, and if not then there will be plenty of other properties to look at. The upside is that there isn’t a shortage of properties currently, so I am in no rush.

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