Shocking Real Estate Purchase Surprise!

As probably many Real Estate Investors, I have seen my share of ‘problem’ houses to put it mildly. New Investors always ask me if I can tell them the most horrifying stories and examples so they can brace themselves for the worst. In my opinion, I believe a thought process like this, however, is very destructive and resembles watching mainstream news, which just serves to scare you and make you anxious.

I purchased a very large old commercial property located in the heart of the city of Macon, GA. The property was previously used as a groceries/ convenience store and had been boarded up for years when I purchased it. My thinking at the time was to make it a small coffee house style business; the location of the property was ideal, within yards of a very much upscale private University in town and skip, hop, and jump from higher learning facilities.

When I finally brought one of my contractors down to break open the boarded up front door so we may have a look inside I was dismayed. The building, although still standing, was literally just a brick shell. The roof was non-existent in a few places; the stairs to the upstairs questionable, and the ceiling/ floor on the first floor was not fit to be walked on. Doves had nested themselves into the upstairs and there was a stanch of bird droppings everywhere and everything was soiled. Moreover there was debris and evidence of squatters living there as well as non-existent doors or windows.

The building was literally just worth the brick it was built with, there wasn’t really anything to remodel. Moreover, as soon as the city got wind of the fact that I had bought this nightmare, they proceeded informing me of something I already knew: that the building was a hazard and needed to be torn down immediately. My nightmare was expanding!

At the time I purchased this property, I paid a little over $4,000 for it, which, at the time, was more than what I usually would spent at tax sales for any one property, but this one had caught my eye and had oh so much potential. After a few easy calculations in my head and the fact that would have cost me close to $30k to tear the building down even with re-selling the brick, I decided to cut my losses at the $4k and run. I found a real easy way to get rid of this property and I encourage you to do the same whenever you are faced with a hopeless situation like this one. Check out my video on YouTube to see a picture of this property and more behind this story: https://youtu.be/KOXn6elcgh0

Until next time: Happy Investing,

Julia M(oney) Spencer, Real Estate Advisor, Investor, and Enthusiast

 

Top 10 Pitfalls When Buying your First Investment Property

Where do I start, which 10 to pick? Run a simple search online, or ask anyone- it seems like everyone has at least 10 pitfalls they can talk about, and the worst is each person’s 10 are different…so which ones actually matter, which ones do you actually pay attention to?

So I decided to talk about the ones that will simply have the hardest impact on your survival as a Real Estate Investor, and, unfortunately, the ones that I most struggled with when I started.

1.) Inaccurate $ Estimation

There are a lot of intangibles associated with estimation and it takes a good lot of intuition and experience to estimate properly. Keep it simple and calculate what makes sense, use your own experience, gut feeling, and ask other ‘greybeard’ investors in your area who are doing the same thing (and have been doing it longer than you).

2.) Lack of a Reserve

Don’t fall prey to not keeping any Cash Reserves on hand after the purchase of a property. Don’t become a new Investor if you have to eat Ramen Noodles or run up debt to afford the remodeling necessary to make the property profitable, plan ahead and keep Reserves.

3.) Calculation Paralysis

It is very easy to get caught up in fancy ROI calculators, tax numbers, and projections from so-called ‘experts’ living far away from your target area.

Keep the calculations simple to start with: Income-Expense=Profit. Continue adjusting Income and Expenses over the life of the project, and use that information for all future projects using actuals and percentages.

4.) Investing too far away

Be weary of online and ‘too-good-to-be-true’ deals. If you don’t know the area, and can’t check it out easily within a one day drive, pass, no matter how great the deal is. When you are starting off you need all the ‘hands-on’ experience you can get- that means physically inspecting as many properties as possible before buying until you can get a ‘feel’ for what is actually a good deal.

5.) Investing in the wrong area

Don’t buy in a bad area. Location is really really really EVERYTHING. Your fancy house in a mediocre or low value area isn’t going to return you the big bucks. Investigate where the desirable areas are thoroughly. Rule of thumb: If you wouldn’t rent there, don’t buy there.

6.) Picking projects that are too large

Don’t make the first deal your career breaker. Do not put all your eggs in that one first basket. If you buy a project house to flip in 6-9 months, and your invest 90%-100% of your capital in this one project, or loan against it, and the deal goes bad, it will be hard to recover financially; furthermore, you will kill your enthusiasm and confidence. Buy several smaller ‘practice’ projects or ones with little remodeling necessary. Don’t use ‘wholesaling’ as your exit strategy, practice that and other strategies when you don’t have to.

7.) Cutting timelines too short

Don’t cut your timeline too close from project Beginning to End. Buffer your timeline with plenty of extra weeks to account for any eventualities. Almost all construction projects I have ever been on, experienced delays, challenges, and problems. Don’t fret over them, factor them in from the beginning and count on them.

8.) Forgetting the ‘Human Factor’

Account for the ‘Human Factor’ in each project. If you are working with a new set of employees/ contractors/ partners/ banks, account for the fact that it takes time to ‘get to know’ each other, and get into a working groove which is productive.

9.) Buying ‘Restrictive’ Properties

Condo associations, historic district restrictions, and prohibitive covenants are often overlooked by new investors and can lead to big losses. For your first investment property always review any covenants and invest in a property that doesn’t restrict your plans.

10.) Freaking out over every Detail

I love to speak about this last pitfall. When I first became and investor and landlord I was freaking out every time a toilet leaked or my tenants were 2 days late with rent payments. My existence was full of horrific anxiety over things that I could not control at the time, and I only laugh about now. Yet if you are not having fun with the experience you are not likely to continue, and continuing in Volumes is the only way to make any worries worthwhile. So don’t fret the small stuff, get expert advice, and go with the flow.

Until next time: Happy Investing,

Julia M(oney) Spencer, Real Estate Advisor, Investor, and Enthusiast