Encouragement
I just want to let everyone know a little bit about how I got started and how I finally stepped up and bought my first house.
I started reading up about real estate investing back in June of last year; my knowledge of real estate was zero before that. I relied on Internet as my research library and allot of how to articles. I kept updating my wife about the material I was reading since I in general likes to consume articles in areas that interest me; I eventually started to look at HUD sites in my area (Miami) and I was lucky enough to get in contact with a broker that I now have formed a very good relationship with.
I found a house and I told my broker about it, they were asking 109K for it and he came back telling me that it would sell for 135K. We decided that we were interested enough to get a lock box code to the house and take a look at it; we went out and took a look at it and it was a complete war zone. The guy living in there was basically sleeping in dirt, collecting dirt, and keep different automotive parts in the house. However, the back yard was huge (12K sq ft); this was our first home that we took a look at and it was hard for us to see beyond all of the crap. We called up the investor holding the property and I started to negotiate with him; we finally ended up coming to an agreement of 89,9K for the property. At this point my wife (partner) and I decided that we were going to give it a trial; we contacted our mortgage broker (before we had access to hard equity) and financed the entire deal (100%); we only had to come up with closing money (6K).
We then started to look for some people that could help us restore the house; here is a warning for everyone. We ended up spending 4.5K on a contractor that was recommended to us but they did not do anything right and they just wanted more money. We finally told them to take a hike; we also learned that we will not pay anyone in advance for something that they have not done; additionally, we also learned to look at the dates on the homedepo receipt given to us by the contractor (he collected every possible receipt from the ground trying to get money for material). We ended up having to go to the house every day after work and work on the house for the next month; this was a good lesson because we learned allot from that. Despite this bad experience we ended up having a great time working on the house and we eventually ended up renting it out to an older couple. This couple is now asking us to tell the house to them and we have agreed to do so at a price of 165K; we put 20K into the house (that includes the 4.5K lost to contractors). We are selling this one by our self so there is no commission, we should net about 45K.
I have since September (when we bought our first house) purchased 5 more houses and I am currently working on selling them with an average net of 30K. All I can tell everyone that is out there still thinking about doing their first deal is to do your home work, network with a good broker so that you get a little bit of a security in your first couple of deals. You will eventually become efficient enough in your area that you will most likely end up doing a couple of deals without your broker or potentially a couple of deals together with your broker.
Don’t walk in blindfolded but also don’t let your self be so cautious that you end up never buying a house. Investing is a little bit of a risk taking but you can cut down on the amount of risk you are taking if you just do your due diligence first. Make sure that you feel that the numbers work and always expect repairs to cost more then you thought they would. In the beginning of your rehab career you will (just as I do) fix more then need to be fixed and that will cost you more but you will eventually start seeing what needs to be replaced and what only needs to be fixed or repainted. Instead of going in and smashing up the entire kitchen, stop and think, can I just repaint the doors or should I just replace the doors and keep the frame.
I have worked with computers for over 20 years now and I always thought that I was going to make it big in computers (I am making good money but not near the money I am making with real estate); however, I have seen that with less effort in real estate one can make a bundle of money and one can get allot of freedom with it. Both my wife and I are getting closer and closer to ending our day jobs and start doing this full time. WOW, that feels good.
Good luck to everyone and keep up the good work.
Here is what I worked out with my broker in the even that you want to use the same argument.
We have worked it out in the following way now, he gets all my houses and I only pay him a commission of 4.5%. For this he has to give me information about how fast he can sell the house (inventory level), at what price he can sell the house. This will help me understand if the deal is good or bad and I feel a little bit more secure about the deal.
Your experience was very inspiring to me. I am getting back into real estate investing. I too have been working in the computer field for many years, and I have come to realize that my future WILL be in real estate investing, and not in the computer field. Thanks for sharing your experience.
HAHA....What is it about people in computers wanting out! I am also in the IT industry, and am looking to invest in real estate some how. I am leaning towards rehabs, wholesaling what I can't rehab, and maybe keeping a couple for cashflow. This was encouraging to me as well!! I have been on this site for months now and am up to my ears in learning materials.I am ready to make a move.
Thanks for the article!!
Chris G
The great book that will help novice rehabbers is "Buy it, fix it, sell it - profit!"
No mistakes like that will ever happen to you if you read that book.
Olga, I am not sure there was a mistake; I would say that anyone can come across bad contractors whether or not you read a book.
Bad contractors are something that won’t disappear just because you read a book; I would encourage everyone to make sure that you know how you are dealing with if you can. In my case the contractor that I hired came highly recommended and that still didn't help.
Use caution, and always remember that participating in fixing a house in the beginning of your investor career will make sure that you gain the understanding for what it takes to fix a house.
It will become easier and easier for you to estimate how much it is going to cost to fix a house. I believe that it is important that as a beginner in rehab you participate in fixing one of your first houses so that you know when you are buying a house how much it is going to cost you and you will know when a contractor is blowing smoke up your alley.
/Chris
Well said, Chris!
Chris,
I re-read my comment and - yes - it sounds like I meant that YOU were not prepared enough, before you got into rehab investment. But no, I did not mean that at all. This was just a reference for new rehabbers to a good book that helps a lot. I should have said "ONE should read the book" instead of "YOU should read..." I am sorry for misunderstanding.
I am about to buy my first rehab property as well. Hope it works out well, just like in your case.
who is the author of the book called by it fix it sell it profit?
Good article cwittusen.
I am curious about your financing. Do you and your wife both have good credit? How did you get 100% financing on the deal?
If you had gone to a 65% LTV hard money lender you would have only gotten about $87,7k based on the ARV of $135. Have you used different methods of financing for your other rehabs, have you dealt with a hard money lender?
You mentioned that you have 5 properties right now. Is that a lot to manage at one time? How were you able to get financing for so many at the same time?
Thanks,
wayne
In response to Wayne.
Wayne:
Yes, both my wife and I have a good credit but it wasn't without having to work at it for the past 2 years.
Additionally, we knew that if we wouldn't receive 100% financing we would have put in a little bit more or gone with a hard equity lender.
All of my other properties are done with hard equity money; I am getting charged 2% up front and 14% on the loan with a minimum of 2 month holding of the mortgage.
My first house gave me the ability to work with other properties because I took a regular line of credit on the house (50K) it allowed me to put money down when ever my hard equity guy didn't cover my entire purchase price. I am now working on a couple of other deals and I will now have a 12% loan instead of 14% and I will be charged 2% up front still but I don't have to hold on to the mortgage for more then one month.
Having 5 properties at the same time is not that much of work and it is pretty easy to manage; since my crew is working on all of them at the same time. I am able to get hard equity money from the same guy over and over (I have properties amounting to over 800K right now) and the reason I have been able to do that is because I have been finding good deals and my hard equity lender knows that if I go belly up (which I am not) he is sitting on a fantastic deal. I have bid on all of my properties right now and that tells me that I have managed to get good deals. This is all because I managed to get into a good relationship with my broker and he does some of my homework in exchange for selling the property. Additionally, I from time to time p***** up deals to him so that he can go in and make some money too but that is mainly when I am having too much on my plate or if I am running dry on money.
In of the houses that I bought, I only had put a new roof on it and a new kitchen and I'm selling it on Thursday. The buyer is so eager to buy it that they didn't want me to finish (because it would cost them more to buy the house) that we made a deal that I would only put a new roof and a new kitchen and that is it. I am walking away with about 57K on that deal.
Thanks for your reply cwittusen.
The way you are going now sounds exactly how I would like to start off. Your information has been very helpful.
I have not started on my first rehab yet, but I have talked to a few contractors. Each of them want 50% down.
Does your Hard Money Lender workout the payments to your contractors through an escrow account or do you handle that?
Is 50% down common practice in your area?
My thoughts are it does make sense especially when working with a contractor that you don't have a solid relationship with yet.
From reading your article it seems like the next contact I may want to make is a good broker. Any suggestions from your experience in good questions to ask of one?
Thanks,
wayne
Thanks for the thoughtful reply Chris. I wish you luck in your future investments.
Do you already or are you thinking of also buying some rental property for cash flow?
.
Your comments on owner financing is simplified, but that subject is an article in itself. (there was one submitted just before yours about owner financing)
I have read on owner financing and it does look somewhat appealing. The particular author I read suggested owner financing in order to broaden your market of buyers instead of having a market only designated to those who qualify for a loan.
If you sell your note there is a discount and I am not sure if I like that. It doesn't seem like you would ever want to owner finance then sell the note unless you really have trouble selling.
Do you forsee any problems selling these properties? Are you using your broker to sell on every property?
I definitely would not have a problem sliding 4-5% my brokers way if he is constantly supplying me with solid leads.
I look forward to hearing how the deals on your other properties go.
-wayne
Hi Chris,
Another question:
Are you concerned at all about holding time?
Are you looking to sell these 5 properties? If so how long are you expecting it to take before you sell on average?
If they don't sell having you considered lease optioning them? If you have to lease option are you already made sure that you can get a positive cash flow?
Investors in my area are telling me that it's buyer's market. They have had to change their strategy to rehab and lease option or rent.
How is the market in your area?
Thanks,
wwayne