3 Things to Remember When Purchasing Your First Investment Property

by | dolinsksite.ru

Today I’m going to be talking about three things you must consider before you buy your first property. OK, let’s get to the vlog.

Do Business With Like-Minded People

In my opinion, the first thing you need to do before you buy your first property is make sure that you are working with the right people. There’s a saying, and it goes like this, “Business is easy; people make it difficult.” You have to establish trust and relationships with people who are going to have the same big-picture as you. These people cannot be about instant gratification; they must be about delayed gratification. I say this because real estate is a long-term play. It takes five, 10, or 15 years to truly build a large and sustainable portfolio. You do not want to work with someone who is all about getting your money right now and then just moving on to another deal (or to another individual).

Related: 12 Simple Steps for Beginner Real Estate Investors

Really make sure that you have the right people surrounding you—whether it be an attorney, a property manager, a rehab crew, a maintenance guy, a title company, or a realtor. Whoever it is that you need to work in real estate successfully, those are the people you should surround yourself with. This goes for investing in your local market (like in your backyard), out of state, or even out of  the country.

Drive a Bargain

The second biggest mistake that a lot of investors make is that they pay way too much for properties. Guys, what I’m about to tell you, never forget. You make money when you buy and not when you sell. So stop paying too-bloody-much for investment properties. I mean, it is the most ridiculous thing I’ve ever seen. Look, I made a big mistake when I first started. I was building my portfolio based on quantity. I wanted to be able to classify myself as this real estate entrepreneur and guru and whatnot, but I really wasn’t thinking about why I was investing in real estate. At that point, I was just buying for the purpose of buying, and that was a huge mistake.

Related: 13 Tips for Skillful Real Estate Negotiation

What you ultimately want to do is buy the right house in the right area for the right price. Buy a house that needs the right amount of work. This way, the property can actually get you a step closer to your end goals. If you strategically purchase properties to meet your end goals and cashflow criteria, you really don’t need much quantity to your portfolio. You can buy five, 10, or 15 single-family homes; you can sell out of that package; you can purchase one multifamily deal that will literally give you financial freedom! I kid you not, because I’m actually in the process of doing that right now. So just to summarize here guys, negotiate hard, be patient, buy cheap, and only pull the trigger when all of the above make sense.

Start Small

Last but not least, stop buying properties that need way too much work. I mean seriously guys, if you have never done a deal in your life—if this is the first deal you are even looking at doing—why the hell would you even consider buying a $14 million commercial property in the heart of New York City? Hello! Start off small. Buy a property that just needs a cosmetic rehab: Paint, carpet, landscaping, new light fixtures. I already mentioned that you make money when you buy and not when you sell. I personally believe that no matter how hot any market is, if you are patient, if you know where to look, if you have some lead generation strategies to acquire properties, you can make money in any market. You may need to work a little harder, but it comes down to how much you pay for that property.

Conclusion

So please, make sure that when you do buy these properties, you don’t buy one that needs structural renovation work, a complete floor plan rearrangement, or development approval from the city. Guys, if you do, you’re kidding yourself. Buy cheap. Buy a property that simply needs a cosmetic rehab. Get in and out as quickly as you can, because time is money. You’ll probably make a ton of mistakes, but learn from those mistakes. Do not repeat them in the second deal. And I’ll tell you this, the least amount of money you invest in your first investment, the better. Investing less means less risk. Even if that means buying a property in a very rough area, I still think you should consider it. You will learn a lot from that experience.

That pretty much concludes my vlog for today. I hope you enjoyed it.

Do you know of any other pitfalls that I missed in this post? Post them in the comments below!

About Author

Engelo Rumora

Engelo Rumora “The Real Estate Dingo" is a successful property investor, motivational speaker and serial entrepreneur that quit school at the age of 14 and played professional soccer at 18. He is also a soon to be published author along with becoming a TV personality in his very own real estate house flipping show. To find out more go to engelorumora.com . Engelo Rumora has been involved in over 400 real estate deals and founded five businesses in Ohio. The most successful is Ohio Cashflow, a company that specializes in providing turnkey properties in several Ohio markets. The newest venture is List’n Sell Realty, a real estate brokerage based in Toledo, Ohio and soon to be known as the #1 discount broker in the country.

6 Comments

  1. Rob Cook

    Engelo, great post as usual.

    The last point is one that really grabbed me – “don’t buy a property that needs too much work.” I am the poster child for making that type of plunge, even after dozens of deals! I call what I do BUYING A JOB. Not to say that is all bad, or wrong. BUT if you are intending otherwise, e.g., trying to buy for the most passive type of investment and income, the you have to be careful here.

    There are a bundle of issues in this situation. First, the usual error most make in buying a property that needs too much work, is underestimating the amount and/or cost of the required work. I own a residential remodeling company and have done thousands of bids for homeowners, and performed over 1000 actual jobs, for them, ranging up to $640K remodels (avg job size for 30 years is around $50K). So I am GOOD at estimating accurately and quickly.

    A second related error, is not accounting for all of the actual costs of the work, usually meaning your own time! Saying a paint job that takes 60 hours to perform, costs $700 because you bought 20 gallons of paint, some spackling compound and masking tape and plastic for that amount, is STUPID! You supplied the 60 hours of labor – it is NOT free. That labor is worth at least $1200 minimum, bringing the hard cost (before business markups) to $1900 for the paint work. Add another 40% markup to figure about what a typical pro contractor would charge for the work. That makes that paint job’s market value actually about $2,700. Now, if you negotiated the paint job cost off of your purchase offer price, using $700 as the number, you actually gave the seller a $2,000 bonus! You gave him, for free, your 60 hours of time, and also the risk and management value of the markup. Yeah, you were a smooth wheeler dealer there, as the seller laughs all the way to the bank at your ignorance.

    The CORRECT posture for you to have taken would, of course, have been to assert the full market value of the paint job against the seller in the negotiation and arrival at an offer price. He knows, that is why he did not do the painting before he put the property on the market!

    Another consideration is the carrying costs of doing the work yourself. If you have a full time career job, as most do when they begin real estate investing, then you have to understand not only that that paint job will take 60 hours to complete, but WHEN you will actually be able to accomplish all of that work. Let’s say you buy the place, and plan on doing the painting yourself. If you need to drive a half hour each way to get to the property each time, that is an hour of overhead time, for each day you perform any work on it. This is in ADDITION to the 60 hours of actual work time required for the painting. So if you decide you can work on this painting, 3 nights a week, for 4 hours total per day including travel time, and on BOTH Saturdays and Sundays for 8 hours each of those days (incldg travel time), EVERY WEEK until it is completed, let’s look at how that looks on a calendar.

    3 nights, 3 hours per night painting time each = 9 hours per week for the night work. 16 hours on the weekend days yields 14 hours of painting work time per week. So the total painting time you can manage, per week, is 23 hours. That will leave little time for the remainder of your life, besides sleep, so make sure you can handle that.

    That means, it will take you almost 3 full weeks like that to accomplish the required 60 hours of painting time, when travel time and going to get the paint and materials is all accounted for. Assuming the property rents for $1200 a month, and is vacant during your painting work (if not vacant, DOUBLE the amount of time it takes to work around a tenant in residence!). That is theoretically $40 a day “lost” rent while you are working on it, vacant, for 3 weeks, or $840.

    IF hiring a paint contractor could have gotten it accomplished in 2 days with a crew, you would only lose $80 in rent, gaining back the remaining $760 you are not now losing in rent. In other words, you are not saving as much as you think, doing the work yourself in this scenario.

    And what if you add to this rehab, flooring replacement, a bath remodel and exterior painting too! You can see how you could easily end up with a vacant property, and no life for yourself, for many months if you do it all yourself in your spare time!

    Anyway, not making myself wrong for working on my own rentals. I love the work. Buy them especially with this in mind. It gives me an edge, of course, because I can buy really needy properties most buyers will pass on. BUT, I do not have a regular full time job. If I did, this would NOT work for me. When I did have a full time job, I had access to my construction company forces and manpower, which we would put to work on my rentals during company down time or in between big projects, etc.

    So the main point is, do NOT delude yourself into thinking you are making a great bargain when you purchase cheap, if the property needs substantial work done on it, and you fail to account for the full, true costs of that work in your analysis. Like Engelo said, look for under-priced properties (always) with ONLY cosmetic work required and even then, do not underestimate all the actual costs involved. TOO late to figure this out after you have purchased it.

  2. Jerry W.

    Engelo,
    Very sound advice. It is clear it is based on common sense and actual experience, which is the BEST teacher. I must admit I really liked Rob Cook’s advice also. His comments are good enough to be an article of their own.

  3. Philip Binversie

    Very good article and I agree, Rob Cook’s advice about taking your own time into account when purchasing is great advice! I have to start looking into those costs a little better instead of doing everything myself (paint and flooring) before purchasing instead of saying I’m saving money by doing it myself.

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