Circa 2006, In Front of My First Investment Property
I bought my first investment property in 2006 and I still own it today. It wasn’t a complicated deal or a complicated process- no bandit signs, post cards, flyers, calling FSBO’s or fancy internet marketing. Instead, I found the deal by looking in the Sunday paper under the “Real Estate For Sale” section.
Sunday Paper Ad, that led me to my first deal
I visited the house (vacant) and discovered that it was builder-owned and had 800 sq ft. of additional living space added on, despite being a zero lot property with 1 car garage. I submitted my standard “3 option” offer, that most new investors are taught, and the seller promptly responded saying “pick 1 and keep it simple.” So, I offered the conventional financing option. He rejected my initial offer because it was too low, but I followed the guidance of the coaching program I was in by offering at least 20% below the estimated appraised value.
After countering a couple times, I decided to raise my initial offer and it was finally accepted and we closed 2 months later. Truth be told, I paid too much for the house (90 cents on the dollar), but I had bought an investment property only 60 days and 5 offers in to my career as a professional real estate investor. And, I was able to obtain a 100% interest-only loan to purchase the property and only had to pay closing costs. So, despite pay a little too much, my first deal was a true nothing down real estate deal (the loan program went away soon after I closed).
Owning the property for 12 years has certainly been an adventure. I rented it and self-managed it for several years, before finally turning it over to professional property management. My first tenants defaulted only 1 month after moving in, and I kicked them out 11 months later, after committing another rookie mistake- keeping them in the property, accepting partial payments, and “hoping” they’d catch back up (hope is not a strategy in business). When tenants get more than a month behind, they usually never catch back up. I re-rented the property again, and again, and again, self-managing it every time- I was the one putting together “For Rent” flyers, posting Craigslist ads, driving to the house to meet and show prospects (if they showed up), coordinating repairs, doing the leases, etc. I discovered real quick how time-consuming property management was and how little I enjoyed it.
I lost money on the property for 3 years before finally making money in Year 4. I caught 3 breaks along the way that made the deal profitable: Break #1- I sued the first tenants, won, and garnished their wages, they lived “rent free” for 7 months in my property, but I recouped most of it in Years 4, 5 & 6 (pay me now, or pay me later!). Break #2- I rented the property to a lady whose house burned and the insurance company paid her rent until her house was re-built. Because it was a temporary situation, I was able to charge a premium of $200/month rent, and I didn’t have to worry about rent being paid because the insurance company was paying it! Break #3- My 5 year ARM loan adjusted. Now, normally, this is a bad situation, but interest rates fell after Year 5 and, consequently, my mortgage payment was cut in half! Certainly helped my cash flow!!
After 6 years of self-managing the property, I decided it was time to fire myself as a property manager and hire a professional company. This freed up a lot of time for me to focus on other aspects of the Real Estate Business, which were a better use of my time, and I received my rent payments more consistently. I made my final “Rookie Mistake” by hiring the wrong property manager- he was a fly-by- night individual, instead of an accredited property manager and I paid the price 2 years later when one of the rent checks he cut me bounced and he got me for almost $5,000 between lost rents and deposits. He would appear on the Memphis 9 O’Clock News 3 years later- after receiving an F-Rating with the Better Business Bureau (BBB) and, in addition to me, swindling dozens of other local landlords out of tens of thousands of dollars in collected rents and being tracked down by a private investigator. I would also learn that he owed the IRS over $160,000 in unpaid income taxes. Lesson learned- always do your due diligence before hiring someone to manage your assets!!
Finally, I turned the property over to CB Properties, and it has been smooth-sailing ever since. My account manager is the best in the business- as evidenced by the fact that the current tenants have been anything but easy to collect rent from consistently. But, that’s the value of a professional property manager- they do the leg-work, the dirty work, of collecting the rents and holding the tenants accountable when they don’t pay.
So, despite losing money the first 3 years of ownership and a plethora of rookie mistakes along the way, I’ve held the property for 11 years and made a profit the last 8. Further, I’ve been able to pay down the principle from the interest-only loan from profits made during the last 8 years and my equity position in the property is growing monthly with principal pay down and appreciation.
Real Estate is very forgiving. As you can see from this summary, I made a lot of mistakes along the way that cost me money, and it is no fun losing money on an investment property! Mistakes in real estate can have a lot of zero’s attached to them, but I caught a few breaks along the way that turned the property around from a cash-losing liability, to a cash-flowing asset. And, I made 2 very important winning choices: (1) I bought in a good area; (2) I took action and bought a property! Sure, maybe I paid more than a veteran investor would’ve paid, but I bought a property that has made money. Real Estate is about ACTION, not about studying, buying courses, or attending seminars- that’s all very NICE, but in the end it doesn’t lead to money. Action does.
Real Estate is the business that pays for itself. You can make a lot of mistakes at first, but if you hang in there during the tough times, learn from your mistakes, adjust, and get the right people in place- you can right the ship and get it back on course. I got into this deal with almost no money out of pocket and despite suffering a 3 year set back initially, I was able to recoup my initial investment and the 3 year losses by simply holding onto the property and waiting it out. This deal is a classic example of the old saying: “don’t wait to buy real estate, buy real estate and wait.”
