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I’m going to break down my first real estate deal and how I got into real estate investing. I am going to dive into the in’s and out’s of real estate investing in the next few weeks, but I want to share my personal experience to give some insight on some of the things you may encounter during your journey and show you that although I have done a real estate deal, it is nearly impossible to prepare for everything but you will have to adjust and find solutions to become a successful real estate investor.
When I started educating myself on real estate investing, primarily by listening to podcasts and reading books, I heard about a lot of the great parts of real estate. I heard story after story of people making a lot of money and getting a lot of properties quickly. This is not one of those stories. Some people have analysis paralysis, I am not one of those people.
I initially got the idea to purchase a multifamily house-hack prior to the COVID-19 pandemic breakout. For those unfamiliar with the term, “house-hacking” is using an FHA or low money down conventional loan to purchase a single family house and live in one room and rent out the others, or purchase a multifamily property with a maximum of four units (also known as a quadplex) and live in one unit and rent out the others. I decided to go with the multifamily option because I feel that with multiple units, your cashflow will generally be higher and figured that it would be easier to fill a unit rather than a room. Also, if roommates join in a unit together and leave together that will not affect the cashflow as much if there are multiple units and if the leases are staggered it will leave minimal time with vacancy.
At that time, I was projecting to have enough saved for a down deposit around the end of 2020 but found a house that I thought was too good to pass up before my projected date. I was able to get help from my parents for some of the down deposit, closing costs, etc. and put an offer in for a duplex in a nice neighborhood about 10 minutes from the downtown area of Tampa Bay. It is an older home and I found this deal through the MLS.
It was a top-down duplex, with one unit on the 1st floor and a second unit on the top floor. I was able to get this house because the duplex was previously under contract with an FHA loan and the previous buyer’s financing fell through a week before closing. By chance, I was able to meet the seller because he was mowing the lawn when I came by to look at the house and I believe because I was able to meet him, I was able to beat out the same offer of a conventional loan with my FHA loan.
There were a few issues with the house that I needed to sort out before I began renting. I wasn’t too worried and thought that most of these issues were exterior...I was wrong. I knew that I’d like to work on the first story roof, because it would collect water during the rain. I also knew that I wanted to put up a fence to create a yard for my dog. Finally, I knew the air conditioning for the upper unit needed to be replaced. Unfortunately for me, a tropical storm hit Florida (which is very common) and there was heavy rain at my house, causing water damage. The water damage was mostly confined to the second story unit. Because of this, I decided to live in the upper unit and rent out the lower unit.
This second story roof was added by the last owner, who flipped the house and did most of the work himself. This roof was not installed properly and there was a hole underneath the pitched roof where water could enter during heavy and windy rain. A restoration company came to mediate the water damage and through that mediation they found mold. Although mold is somewhat common in Florida homes due to the amount of rainfall, due to the hole in the roof and presence of mold, my homeowner’s insurance did not cover this restoration. After finding mold, the restoration company removed the drywall in certain areas to mediate the mold and left the fans and humidifiers running to stop the issue. The heat these machines let off put a lot of pressure on my air conditioning unit, causing it to blow and forcing me to get a new AC unit. After that was installed, the restoration company had worries about the wiring in the second story unit and said they would not repair the drywall until the wiring in the unit was fixed, so I had to get my second story unit rewired. After my second story unit was rewired, I had a drywall company come in and repair the holes in the walls and paint the unit. Needless to say, this was a lot of unexpected work.
Installing a fence to create a side yard was no walk in the park either. I had to bust up a concrete patch that was in the yard, which for some reason had 3 layers. After the concrete was busted up, the fence could be installed. While the fence was being installed the water line needed to be moved.
All of these issues are not meant to scare anyone from getting into real estate investing, but to simply highlight the fact that there are issues that may come up unexpectedly in the process. But there is light at the end of the tunnel and there is a solution to every problem. Real estate investing will continually present problems, but the rewards are immense. I have had tenants in my bottom unit helping with the mortgage, which allows me to use saved income to help with these unexpected expenses. And throughout all of this, my property value has been appreciating as well as adding value. If I ever needed to sell or decided to sell my duplex I would benefit from great appreciation. These issues may have delayed the purchase of my second property, but the lessons learned during this first purchase cannot be quantified and will help my journey in real estate investing be successful. Lessons are often learned through hardship, and in a way, I’m happy to have learned so many lessons on my first property. I now know more about what to look for in future properties and have a better sense of what reconditioning costs will be.
Have a great rest of your week!
Brandon & Dan
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Disclosure:
The article was written by Daniel Kuhman and Brandon Keys, and it expresses the author's own opinions. The information presented in this article is for informational purposes only and in no way should be construed as financial advice or recommendation to buy or sell any stock, asset, or cryptocurrency. Brandon and Daniel are not financial advisors. We encourage all readers to do further research and do your own due diligence before making any investments.