Ya know, some day I will have a ridiculous real estate journey to share (today is not that day).
People will flock for internet miles to read about my success and wish they had some success to call their own. They’ll wonder, “how did he do it?” and think, “must be nice to have legit passive income.” And if they were on any other website, they might even click off feeling lost and overwhelmed by a desire for success but no idea what getting started looks like.
But not here. I’m going to share everything from the beginning. My failures, my mistakes, my false starts. I have a goal to buy a piece of real estate by the end of the year, but maybe I won’t hit that goal.
You’ll read about it here.
Then, some day when I’ve obliterated my goals and my family is living the (even more) incredibly blessed life they deserve, people will have a place to read about HOW they can do it, too.
This week, I thought I would give you guys an update on our real estate investing journey so far.
In case you didn’t know, I announced a few weeks ago that I am quitting my job in about 15 months (January 2019). I’m a bit of a planner, and I make a six-figure salary as the sole income for our family. I wouldn’t describe myself as someone with a dead-end job; it’s quite the opposite. So, while 15 months sounds like a lot of time, it’s not! The clock is ticking, and we have income to replace.
If you’re inspired, drop your email in the form below and follow me on this journey as I try to level up in time for life outside of the 9-5. Can’t wait to meet you and share what I learn with you!
Our First Real Estate Agent
I found our first agent on the forums at Bigger Pockets. I introduced myself and expressed interest in meeting an investor-friendly agent experienced with the buy-and-hold strategy. I got one response from this guy (let’s call him Max! since that’s how he liked my offers to be) who said that he dealt with investors all the time, and he could definitely help me get started.
I sent Max! a private message, and we exchanged contact information. We spoke on the phone, and he let me know about all the properties going for $35K – $45K which could be flipped and sold for $100K. He made everything sound pretty darn good!
The first property he called me about was a duplex in a nice area outside of Columbia, SC.
—————- Phone Call with Agent —————-
Max!: Now, I’ve talked with the seller, and she’s willing to let this thing go for $87,000, which is a steal.
Me: What’s the address?
I look the property up on Zillow
Me: Uhh, it’s listed for $78,800
Max!: What? I just talked to her, and told her I could find someone to buy it for $87,000! She must have gone and gotten an agent and had it listed.
He was right. It had only just been listed the day before.
—————- End —————-
This conversation was the first of many warning signs. It just didn’t give me a good feeling. It always felt like he was trying to up-sell me. Max! walked me through the property, telling me what the property would cost to fix up (that I did appreciate since I’m not experienced in property rehab). He had worked out what he thought I should offer, and I think he expected me to offer something around $69K?
When I called him to make our first offer at $58,000, he said, “Oh…. … I don’t think they’re going to take an offer that low.” I actually told him I would pay $58,000 with financing, or $48,000 cash. I wasn’t sure which he thought they would go with. He seemed to ignore my cash offer (didn’t even acknowledge it) and submitted the $58,000 offer instead.
Duplex pictured above. Needs work, but in a great location!
List Price: $78,800 | Purchased in 2004 for $67,500
Units: 2 | Sqft: 1,600 | Total Rents: $1,085 | Property tax: $1,500 | Garbage: $35/mo
Issues: Both bathrooms need to be redone; hardwood floor in the hallway needs to be repaired, both kitchens need to be updated, termite damage (new info). I estimated $15,000 repairs (before I found out about the termites)
Cash flow: If they’d accept an offer of $58,000, and rehab stays at $20,000 or less, and rents don’t change, this property could cash flow $315/mo, or $157/mo per unit. The cash-on-cash return would be just over 10%.
Our goal criteria right now is $150/mo per unit and 10% CoC return. If it’s possible to get the property for 20-30% under market value, we’d do that, but that seems unrealistic lately. Still, we’re being picky.
The seller countered a couple of days later at $76,900. I sort of walked away at that point because I knew this duplex needed work, and it just didn’t look like a sweet deal. I’m not made of money, so I’m looking for a sweet deal. 🙂
After a month, the property was still listed, so I submitted another offer for $66,000, the most I would agree to pay for this property. I never heard anything back. Max! said he hadn’t gotten a response from the listing agent. I started thinking. Something just hasn’t felt right about Max! .
When I put the first offer in, I signed an exclusivity agreement that states I can’t use another agent, and a bunch of other things which protect the agent, understandably so.
So I asked Max! if I could have my earnest money back and if I could be released from the exclusivity agreement since they hadn’t filled in the expiration date on the agreement when we originally signed it.
Max! replied, “Oh, that’s not a big deal, you can work with other agents if you want.”
I realize that this isn’t a big deal for many people, but I work in Information Security and Risk Management. So, making sure that all the paperwork is in order is a big deal to me.
I went straight to the broker’s office the next day and met with Max!. I brought the exclusivity agreement and asked him to complete the document’s expiration date, initial/sign, etc. I got my earnest money check back and deposited it back into my bank account.
Lazy and/or Shady Agent Confirmed
I have a high school friend who is now an agent, and I asked her to call the listing agent on this duplex. They spoke, and the listing agent indicated that, after they countered @ $76,900, they never heard from me again.
This is pretty much what I thought had happened. I just didn’t have a great feeling about Max!, and I suspected that he hadn’t submitted the offer.
Not filling out paperwork fully and then treating it as not important, not submitting offers, rationalizing and basically trying to get investors to pay a higher price than something’s worth AND what the seller will take. Does this sound lazy and shady to you? I’m curious to hear what my readers, who are experienced real estate investors, think.
Current State of the Negotiation
We continued talks with the listing agent, and it sounds like a recent deal fell through due to some termite issues. The termites are eating the wood siding on the house, and I guess the buyer didn’t want to deal with those issues.
I haven’t made another offer yet because I’m not sure what the costs will be. I estimated we’d need to put $15,000 into it before I knew about the termites.
The listing agent says the seller isn’t in a position to take much less because of what she owes on it. I think that’s unfortunate, and if I had to guess, we’ll see the house as a foreclosure next year, and it’ll get sold in an auction that I’ll miss out on.
I can hear my brother saying, “Ha, newb!”
Here’s what stuck with me:
- When you sign paperwork, read it, and make sure it’s completely filled out
- Make sure the Exclusive Agency agreement has an expiration date
- Trust your gut on agents, if an agent keeps pressing you to go higher, move on
Hey – if you’ve made it this far, you’re going to love what comes next. Go ahead and subscribe below for more updates as I continue down the road to freedom through passive income. Hopefully, you will pick up something useful which you can apply to your own goals and journey.
What are your thoughts?
Do you guys have any experience to share here? Are any of you going through the same process of learning and analyzing properties? What can you add to, or take away from my story?