To start at the beginning – please see part 1 of this series.
When we last left off, I’d identified an area of town I wanted to buy in, and had toured all the 2 bedroom units in 3 buildings. I’d put in a lowball offer on each of them (12 units I think) and was turned down by each of them. I was upfront to my agent that I was going to keep raising the amount and re-offering on each unit in tern (according to my ranking of their “desirability”).
I actually started getting the feeling that my agent wasn’t presenting the offers. She told me that the listing agents were getting angry at the offers, but when I asked her for more details about the conversations, she got vague in a hurry and couldn’t provide any specifics. Finally, in an effort to get her to present the offers, I offered to fax them to the listing agents myself to save her the effort (since I was making A LOT of offers), which she declined, saying this was part of her job.
What got her going again was I told her that I thought after the current round of offers maybe I’d target another, more affordable, area of town. I think she decided that presenting offers was easier then showing me more units and got to work. Again, this is my speculation, I *HOPE* she was presenting offers and doing her best to get me a good price, but you never know for sure.
It actually got to the point where she was suggesting I talk to the listing agents directly. She diplomatically presented this as wanting to help me get the best possible price, even if it meant her losing out on her commission. I think the reality may have been that she was thinking I was too much work for the expected commission (which I can totally understand, I’d drop clients if they weren’t profitable from a payment-per-hour-of-work perspective too). Amusingly, right when we were having this conversation, one of my offers was accepted (outright) and I got a 2-bedroom condo in rough shape for $126,000.
My original plan was to do the renovation work myself. I had approached buying the condo (which are known to be one of the least profitable forms of rental housing) as a learning exercise, and even if I just broke even I was reviewing it as more then an investment. Doing the reno work was supposed to be a chance to learn about painting and laying down flooring.
My father had offered to come help me do the work, and I’d refused (I don’t like the idea of dragging in friends and family as free labour on money-making ventures). Faced with a fairly daunting job ahead of me, I reconsidered and asked him if he was still willing to help teach me how to do it. In the interim, he’d reconsidered as well ( we’re an indecisive bunch), but he suggested I get the unit professionally worked on in order to get it in rentable shape ASAP, and generously offered $5K towards the renos.
I debated about trying to do it myself, and got to the point where I was losing sleep worrying about doing the work. At that point, I decided to bite-the-bullet, get advice and hire contractors to do the painting and flooring for me.
4 replies on “Getting Started With Investment Real Estate – Part 4”
I love my apartment building. Buy an apartment building, it is the bedrock of my portfolio.
I’ve been thinking about buying my first rental property and have been reluctant to do so at this point due to the many unknowns and lack of personal experience in real estate. I’ve been waiting for the housing prices to lower but I could be waiting along time. I really shouldn’t be market timing, especially if I plan to be in for the long haul. Anyhow, keep us posted on your progress, any kind of insight is helpful.
Q: You’re braver then I am! My dream is to own an apartment building, but I’m trying to cautiously work my way up to it.
Do you have any books / articles that you’d recommend for soon-to-be apartment building owners? What kind of returns have you seen from your building (if you don’t mind me asking)?
I’m planning to work through my ledger and post my returns on my condo. Hopefully you’ll let me know if I’m making any mistakes with my calculations :-).
al: Sorry for the delay is accepting your comment (it got stuck in my spam filter somehow).
Waiting for market prices to drop isn’t a good idea in my opinion. Often when real estate corrections occur instead of prices dropping, they just don’t go up vey much for a long time. Prices stagnating won’t help you get into the market.
Buying your first rental property is really scary, and I think most people who want to never do because its so scary. I had planned to buy a rental property 3 years before I actually did, and I just kept giving myself excuses not to do it.
I’d recommend buying a cheap condo in whatever area you’re in (not in the worse part of town, but not the best). More expenses properties are hit harder in corrections than cheap places (because people still need to live somewhere, right?). If you can find a place that rent will cover the expenses (condo fees + property taxes + insurance + mortage INTEREST payments) its a good buy regardless of where the market is at.
The value of buying a cheap condo is that less money will be invovled, so it’ll be less scary, and it’ll give you a chance to learn a lot about real estate on a smaller scale (I’d rather make a mistake with a $100K condo then with a $900K apartment building).
The disadvantage is that condos don’t have the best numbers (tougher way to make money). If you view your first property as “education” as well as an investment, it can make sense.