WOW! What a whirlwind past couple weeks. Here's the big news: Today, I received the final closing package from the Title Company with all signed documents. They're saying I should get the Owner's Title Insurance Policy and Deed via email in a couple weeks. I'm officially a rental property owner! Here's a quick recap of how things went down:
December 8 - I sign the Purchase Agreement and am introduced to Danny for Insurance. He shoots me over a number of questions/items he needs:
-The purchase price of the Property?
-Is the property 1,2,3 or 4 family dwelling?
-Is the property Vacant or Occupied?
-Cost of the rehab (If Any)?
-A copy of pages 1 & 2 of the settlement statement (HUD-1) *You will not get this until you close*
-Complete name the policy is to be issued?
-Complete mailing address of the policy holder?
-D.O.B. and SS# of policy holder or person controlling the LLC.
-Contact Phone # of policy Holder.
-The date policy should be effective.
-The amount of coverage you desire on the property, If you have made a determination on that.
Then, I'm introduced to Daniel for Title work to start the closing process. He requests a few things as well:
-The address of where you would like the property tax bills sent.
-Your Telephone Number for the Indiana Sales Disclosure.
-The date you will be ready to close on the property.
December 12 - I finalize Insurance on the property with Danny. As it'll take a few months to renovate, I get a $50,000, 3-month vacant policy with rehab endorsement for $256.25.
December 14 - I receive closing documents, wire instructions, and title work.
December 15 - Receive the Scope of Work (renovation details), which I'll touch on in Part II.
December 16 - I send over closing documents and wire money. I officially jumped in. No going back now...
-As a "first-timer" there's a ton you will not know about what it takes to close on a property. Look over every single document you receive and ask questions if you're unsure about anything. Reach out to connections that understand the real estate business. Reach out to friends that have purchased houses in the past. Reach out to your old friend's father who is a realtor. Reach out to anyone that can offer assistance and ask questions on the BiggerPockets forums.
Now that I have a property, let the renovations BEGIN!
After receiving a number of unsuccessful leads, I realize I need to BE PATIENT and wait for the right investment. I'm too eager to retire tomorrow. That's just unrealistic. But, at the same time, once a good deal comes through, I need to jump on it quickly if it's the right fit.
Today, I got another lead!
This property is vacant and requires a rehab (although, not a heavy one). On paper, the numbers look good! This is the best looking property I've seen so far:
First impressions of LEAD #4: Highest monthly rent I've seen. Highest annual taxes. Large plot of land. Neighboring houses look like they are in good shape. Next door neighbor has nice square footage and 3 floors...could be high value. This property has a garage. Stone siding is a plus. I like the surrounding tree lined-streets and area. Neighborhood isn't as dense as others I've seen in Indianapolis. Overall, I like a lot!
You know what's next...time for as much due diligence as I can from half a country away...Google Street View, research on Zip Code, crime stats, Zillow for home value and comp values, and verify county tax numbers. Pretty much everything I find is POSITIVE!! Remember, to run your numbers on the BiggerPockets Rental Property Calculators. From the second I saw this property hit my inbox, I had a good gut feeling about this one! Here's additional data I found:
-2 Bed, 1 Bath, 1 Car Garage
-768 Square Feet (1,536 if you include the unfinished basement)
-Lot Size: 7,840 square feet
-Estimated Rent: $750 per month
-Median Zip Code Home Value: $118,100
-Crime: Light Green/Dark Green (safe) in immediate neighborhood, but 0.5 miles from Red (less safe) commercial zone.
-Closest School: A K-8 one mile away rated 8/10 according to Zillow
Things are looking real good on this property. Here's what I like:
1. It's a vacant property needing a fresh rehab. New infrastructure = GREAT for limiting capital expenses early on.
2. All-in cost is under $50,000.
3. Gross month rent is a VERY respectable $750.
4. Neighborhood looks nice from Google Street View. I wouldn't be afraid to live there.
5. Surrounding properties have great market values (all worth $50K+).
6. Large lot size = less dense neighborhood.
7. Stone siding should hold up better in the elements of Indy.
8. I like the tree-lined neighborhood.
9. House ALREADY seems to be in decent shape.
Having learned earlier from a previous property (LEAD #2) that slipped away, I reply back requesting to put this bad boy UNDER CONTRACT!
Fingers Crossed! Am I one giant step closer to being a first-time home owner??? I think I am!
-My inability to close on a deal immediately, actually helped me in the long run. Being patient can pay off, as it did in this case.
-On the flip side, once that deal comes through, or you find an amazing deal, you have to jump on it (after proper due diligence).
-If investing in real estate is the strategy you're going with, you HAVE TO COMMIT and put your money where your mouth is. Make sure you have financing readily available and be mentally prepared to watch that number in your bank account shrink.
Caught Off Guard
THIS is the week. The week I start a new chapter in my life. Only...not so fast...
After a conversation last week with my Acquisitions Manager (AM) regarding a property I really liked (LEAD #2), I was promised three things by Tuesday (yesterday) before I could commit:
1. An inspection report.
2. Additional photos.
3. Details on the renovation Scope of Work.
...SO, I followed up as nothing was communicated to me.
I was immediately caught off guard by news from my AM: the property I was VERY interested in, the house that I spent hours researching, the house that I envisioned already in my portfolio...WAS SOLD OVER THE WEEKEND! What??? YEAH...that sucks...
As I sat around waiting for additional information on the property, it was purchased right under my nose. Frustration in lack of communication overwhelmed me. How did my AM alleviate this frustration? He sent me another lead:
Numbers look good, but...wow....this place looks like crap. I have to be optimistic with these low valued properties. I have to constantly remind myself - this is not the Bay Area! It's clearly vacant with boarded up windows and needs a very HEAVY rehab of $22,000.
Per routine now, I hop on the research train. Red flags pop up immediately - crime ridden neighborhood, street view revealed an under-developed area, and the biggest issue...it's right next to a bar. I can already see drunkards peeing on the siding at 3am. I also see vacancy issues because, who wants to live next to a bar?? I say NO to this property just as quick as I received it.
-Immediately after finding a property, do your research, and if interested, put it under contract right away. In this case, there would have been no risk in putting it under contract. Deals won't casually fall into your lap and people aren't going to be patient with you. Take action, jump in, and be aggressive if you find a deal.
-Always over-communicate, set timelines, and set expectations. If you aren't getting answers, don't be afraid to speak up.
As stated above, I immediately rejected this lead, specified my reasons, and re-iterated my investment needs. Now, I'm back in waiting mode and will impatiently stay on the lookout for new leads from my Acquisitions Manager. This is where you need to find balance between patience and being aggressive.
Follow Up on My First Hot Lead
After receiving my first leads yesterday, I immediately got to researching LEAD #2 (below) as thoroughly as possible. What did that entail? HOURS of Google Street View, crime stats (Trulia is good for this), zip code demographics (unitedstateszipcodes.org), comp sale prices, and news articles on the specific neighborhood.
What do I like about the property?
-The low all-in cost of $39,000
-A fresh renovation job = should be better in the long-run
-$600 in gross monthly rent seems good for the price
-Neighboring properties all have values in the $40,000+ range (according to Zillow)
-The neighborhood doesn't seem like a war zone (according to Google and Crime Stats)
Even with my independent research, I clearly had additional questions. I gave my Acquisitions Manager a call and asked:
1. Can you confirm the acquisition cost?
2. What goes into the rehab and what's the cost?
The Scope of Work has not been established yet. Staff haven't been able to get into the property as it was just acquired. However, this type of property typically gets brand new windows, new furnace, new water heater, new roof (or repairs), new electrical, paint touch up, and any other repairs needed to get it rent ready. Rehab estimate is about $15,000.
3. Can I see an inspection report?
That will be provided next week.
4. Does the property have a backyard that extends to the back alley?
(I noticed a potential large plot of land via Google Maps)
Yes, there is a backyard that extends to the back alley.
5. If I choose, can I replace the main water line from the street? (I asked because I was being overly cautious...I had nightmares of the water line busting and costing me a ton)
Yes, that can be negotiated once a renovation plan is discussed.
6. Can I see additional exterior and interior photos?
Yes, they will be provided.
The phone call ended on a positive note, but before I could pull the trigger, I requiring a few things in order to further pursue this property:
1. I want an inspection report.
2. I want additional photos.
3. I want details on the renovation scope of work.
According to the Acquisitions Manager I should have everything I requested by mid-next week. Could this house in Indianapolis soon be mine???
-It is TOUGH committing to your first property. You're going to have an endless number of questions. It's especially tough committing to a property you've never seen before!
-Due diligence is one of the most important steps in real estate investing. Understand the neighborhood, understand your expenses, understand your income, understand EVERYTHING!
-USE the BiggerPockets Real Estate Investment Calculators before you purchase and get a detailed report of the financials.
First Leads Rolling In
After speaking with a Turnkey Company a few days ago, I've been anxiously awaiting details and information on available properties. As time passed without any communication from the investment company, I felt a little discouraged and admittedly questioned my whole investment strategy, but to my pleasant surprise, I received three property leads today! Here are basic numbers on the top two that rolled in:
This property is already leased with a tenant and would be cash-flow positive the moment I close. Requires no renovation.
FIRST IMPRESSIONS OF LEAD #1: I'm assuming the tenant is a family with a couple kids. A little cluttered. Basic structure of property looks to be in decent shape. I like the 3 bed/2 bath floor plan, but rent seems low for this square footage. Yard/grass not over-grown. However, this is not the type of property I'm looking for. I want a renovated property with brand new infrastructure (plumbing, electrical, water heater, HVAC, etc.) to better protect me in the long run.
Of the three properties in this first round of leads, this one stands out as the best fit for me. This property is vacant and requires renovation:
FIRST IMPRESSIONS OF LEAD #2: Clearly vacant with boarded up windows. I like the porch and brick. Roof looks a little uneven and might need some work (could be additional costs). Security gate (rough neighborhood?). Two floors (maybe an attic?). Neighboring house in very close proximity.
At this point I'm feeling trigger-happy, I want to put my new investment plan in motion! I'm trying to retire ASAP (I know...not realistic). I immediately do my research on LEAD #2 - LOTS of Google Street View, research on Zip Code, crime stats, Zillow for home value and comp values (I know, not the best), and county tax numbers. LEAD #2 is not the prettiest looking place, especially compared to properties in the Bay Area, but the numbers look good! And $15K in rehab should spruce this property up quite nice. Now, I'm VERY interested, but have a number of questions. Time to follow up ASAP!
-Getting property leads SENT to me directly is a lot easier than having to find them on my own. This is where a Turnkey Company comes in handy and is especially clutch since I don't know the city and its neighborhoods at all.
-I can't expect properties to look anything like homes in the San Francisco Bay Area...especially at the price point I'm looking at.
-Quick, but thorough due diligence is key. Have a checklist prepared and look out for any red flags. At minimum, check: Zip Code stats, Zillow, Trulia, county tax numbers, previous tax assessments, Google Maps (what's around the immediate neighborhood?).
The Call That Changed My Life
Living in the San Francisco Bay Area and witnessing local housing prices skyrocketing every minute, I'm committed to looking out-of-state for my first real estate investment. Today, I had a scheduled call with a Turnkey Company specializing in selling investment properties.
Really quick, what's a Turnkey Company? Well, they're loosely defined as a company specializing in making an investor's life "easy." They assist in property acquisition, renovation, and property management, while the investor is often living a long-distance away.
What's attractive about going the "turnkey" route? Passive income, investing in performing assets, and having a third-party manage it. From a workload standpoint (as someone who works 40+ hours a week in a corporate job) relying on this company for renovation, tenant screening, and property management are HUGE wins.
So, how did the call go? First, I thought I'd actually be on the phone with the founder of the company, but it was an Acquisitions Manager. He gladly answered the 20+ questions I had as if he were reading a script. I get it, he gets the same monotonous questions all the time from new investors, but was very friendly and easy to talk to. Here are a number of basic questions I asked:
1. What's the cost of the properties you offer?
Typical all in cost is between $40K and $50K. This includes light to heavy rehab depending on the property.
2. What fees do you take?
To manage the property, they take 10% of monthly gross rent.
3. What does management handle?
Management oversees marketing the property, tenant screening, setting/collecting rent, leasing, maintenance, repairs, handling move-in/move-out, and evictions.
4. What's the tenant selection process?
Background check, employment verification, and verification of financials.
5. What cities and neighborhoods do you target?
They work in Indianapolis, Indiana.
6. What expenses do I need to budget for?
Property taxes, insurance, maintenance, vacancy, repairs, and capital expenses.
7. Is there a warranty on construction?
There is a one year warranty on construction.
8. Can you provide sales comps in the area?
Yes, comps can be provided. Information can also be found easily online at Zillow.com or Trulia.com.
We ended up talking about a couple properties at the end of the 30 minute call and the Acquisitions Manager said he'd email over additional details. Looking forward to seeing what they offer!
-Looking into investment properties outside of your local area (even out-of-state) is a viable option.
-If dealing with a Turnkey Company, compile a list of questions for them. Not only do you want to get as much detail about their product as possible, you need to feel them out as a company. The first step is to determine if this is a company you can trust and do business with.