“They” always say that purchasing your first rental property or closing your first investment real estate transaction is always the hardest one. Well that quote couldn't have been any more true for myself when closing my first deal.
I first want to state that I'm writing this article to motivate others to close their first deal and that you don't need a lot of money or need to know everything before jumping into your first real estate Investment. I also want to motivate others to not let life's trials and tribulations hold them back from following their dream of real estate investing.
I'm going to keep it simple and jump right into the details of why this deal happen and how I structured the deal with my good friend, business partner and also new investor. First I must add that i'm a new Realtor which makes the situation a little more complicated. The story begins I had saved around $10,000 to purchase a home to live in or a rental unit in the fall but was gun shy on purchasing the rental and couldn’t find a affordable home. Soon after through unforeseen circumstances I had to spend most of this money on an emergency and was low on cash. This forced me to think hard about how i was going to receive income since I had quit my day job a few months prior (not smart). My idea was to purchase a rental property but how with no job and no money? I planned I would borrow money from family then partner with my friend/ current investor and purchase a property together and receive 50% of the profits. I would be the agent tasked with finding potential deals on the MLS analyzing them, then narrowing down a list of properties to visit and make offers on. My business partner who owns a large framing business with his family and has been in construction many years would bring his home building experience and the other portion of the down payment. So on with the search. With a hot seller's market we still found a few deals but settled on purchasing a 2000 build 3/1, 1,008 sf duplex in a newer neighborhood in Hagerstown, MD for $83,000, we think we could've saved a few more thousands but were ok with this price because of the homes age . For our first investment I believed this was a good deal because it was a lot newer than the 1900s built inner city homes that filled our price range. It was located in a low crime and quiet community. It was built on a crawl space which meant no leaky basements and its small size meant short mechanical runs to fix. All these seemed like educated reasons this could be a good rental along with the cash flow that easily covered the monthly mortgage by almost 2x with rent at $1,050 - $1,100 . We did have one a small leak to fix but with the minimal plumbing runs we took the chance and purchased the property without being able to turn the water on until after the purchase.
Now what actually made this transaction difficult? Me being an agent I had to facilitate the REO transaction but also as buyer I had to speak many hours about details with my business partner. Also being a business owner doesn’t make it easy with financing because you have to furnish so many documents to the lender about your current company and how you substantiated your income, this was my partners dilemma. In addition since we submitted our offer on the property. Which was an REO property / HUD home also did not make it simple to deal with. The seller the Dept of HUD or big GOV didn't do much to make the process smooth for myself the agent or for the rest our team on the buyer's side. Like demanding we show proof of every single cent of the down payment money without notice in 6 hours on a Friday the day after we submitted our offer, money which was in multiple savings, stock and refinance accounts and myself obtaining a loan from family. Obtaining permission from a out of state 3rd party company to turn on the utilities multiple time. Delaying closing multiple times and forgetting simple items on the Closing Disclosure like our commission which seemed intentional but oh well it was caught. Lastly waiting until after business hours on closing day to send the final documents to the closing table. Which we believe could have been a ploy for us to walk and not close. Why? Honestly I can't say why but possibly they didn't want to actually close because the house was being sold under value and they thought they could sell it for more if it returned to the market.This is all speculation and we won't ever know because we closed. This deal was in jeopardy of not closing multiple of times but it finally did. The transaction was difficult but taught me more then I would have know if it was simple and easy. One thing I can say is REO deals are character building forsure.
So to sum up the deal. I borrowed money from family for the deal and partnered with another investor so I wouldn't have to use any of my own personal funds. I also must mention my business partner would cover for the out of pocket expenses like inspection, appraisal, minor rehab of the unit and I would manage the rehab. The unit will cash flow $440 - $460 per month. Not a home run but a simple low risk deal. The plan is to do a small rehab, rent it and then obtain a home equity loan or refinance in 6-12 months pull some cash out and purchase a 4 unit if not larger to generate more cash flow. Thank you for taking the time to read my article, believe in yourself and never stop dreaming... and take action
Next the rehab process...![20170513_112203.jpg]
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