How I Got My First Deal Done – Without Leaving Scars!

They say the first one is the scariest. That seems to hold true of first days on the job, first dates, and other firsts. I guess it’s the fact that you are completely out of your comfort zone. Well, here is the story of how I got my first deal done. I was living in the Boston area at the time and was looking at several markets, none of which were near my house. I ended up assembling a team in the Indianapolis area where I had previously lived. I’m sure part of my decision on this market was due to my familiarity with the area. I got out of my comfort zone, just not too far. I had set up a team by using my Realtor, calling the local REIA, and numerous other contacts that came from email and live conversations. 

The property was an REO (Bank Owned) in an up and coming area. Comps were hard to come by as many in the area were being sold using land contracts. In an area only two blocks away, the renovations were all but complete and it had turned from a drug infested area to a “yuppie” neighborhood. The renovated area was going for $300,000 to $450,000 for a duplex completely renovated. The property I was looking at needed a lot of work and the bank had recently reduced the price to $59,000. I had a contractor look at the property and he gave me an estimate for the repairs. Repairs were estimated at $50,000. Combined rents would run $1500 monthly so it looked promising. I put a bid in for $39,000 with a financing contingency. The bank sat on it for over a month and then came back with a rejection. I found out there was another interested investor and got the hint that they had put in a cash bid for $50,000. I put in an all cash bid for $50,050 with proof of funds from a loan I was going to take on my 401K. 

Financing fell through; however I had the cash for the purchase. Now I had to get creative for my rehab. Using a combination of private lenders and a second mortgage on my primary residence, I was able to complete the rehab. I came out to see the property for the first time when closing. Yeah I know, crazy buying a rehab project sight unseen. I closed and walked the property with my contractor. I set up a strong contract with the contractor and he completed the project. He was over budget, but I had negotiated the price in advance. Since no major changes had taken place, overages were the contractor’s problem. 

We found a management company to handle all of the maintenance calls, collect the rents, etc. We were able to rent both sides for $750 each and have had good tenants for several years. Six months after owning the property we were able to do a cash-out refinance that enabled us to pay back the private investors and also provide seed money for our next deals. 

Many lessons were learnt. Here are a few timely tips: 

• Always have a contract with people that spells out exactly what everyone will do and for what price. 
• A total rehab for a first project is not recommended. 
• A rehab project while you are 1300 miles away is not recommended. 
• Expect the unexpected. 

Would I have done anything differently? Sure, but I wouldn’t have learned as much as I did. Best thing, I got out of my comfort zone – that is how I got my first deal done!