This is part 3 of my Real Estate Adventure series:
Part 1 – We’re buying a new property
Part 2 – Finding a city to invest in
The current situation
We’ve figured out our area and found some promising cities within that area. It’s time to start looking at listings. Idaho is not on Redfin which means I need a realtor in order to access the RMLS. Here’s what happened:
- I found a realtor. To do this, I went on BiggerPockets and looked up investment realtors in Boise. Then I emailed one, we jumped on the phone and it was a match. I liked that she works with a lot of out-of-state investors, has her own investment properties and is very responsive.
- I found a property manager. This company was recommended by my new realtor and will provide me with estimated rents on deals I’m considering.
- I analyzed a billion deals. My realtor set up an RMLS search to email me new listings every day. I diligently went through each one. When something looked interesting, I ran the numbers and reached out to my realtor and property manager for their feedback.
- I put in an offer. A couple weeks in, I found a deal. It was a single family house with a giant basement and (what seemed like) great potential to become a duplex. It was a solid 1% deal with a 8% cap rate. An hour after I saw it, I put in an offer for the asking price, $89,000.
- That’s when things got bumpy. Right away, the sellers came back saying it was a multiple offer situation and asking for our best and highest offer. My realtor was saying it was a great deal, and my property manager was saying it was a great deal. There were 6 other offers. Everyone was telling me I could easily rent it for $1000 as a single family, and $1200 as a duplex. My instinct was to offer $95,000. The realtor and property manager agreed. But something just didn’t feel right. From what I’d seen on Craigslist, those estimated rents sounded too high. On a whim, I called another property management company. A woman answered on the first ring and I said:
“Hi, you don’t know me, but my name is Emma and I’m from Portland. I need to turn in my best and highest offer on a property within 2 hours and I was wondering if I could run it by you because something just doesn’t feel right.”
Without missing a beat, she said, “What’s the address? I’ll head over there now.”
I was in love. An hour later, I got this text message:
Don’t offer $95K. Are you sure you want this deal? Electrical wiring is exposed and duplex will cost $30K. I wouldn’t touch it
Wow. I was floored. This was the complete opposite of what my realtor and property manager had said. So I had 60 minutes to decide on this deal and absolutely no idea who to trust.The end result? I decided to follow my new property manager’s advice and stay at $89K. I did consider walking away but without knowing who on my team to trust, I felt like I didn’t have enough information.
The next day, my offer of $89K was accepted.
What I’ve learned
- Analyze 50 deals. The only way to spot a good deal is to do the legwork. And, what looks like a good deal on the RMLS listing doesn’t always end up being a good deal after you do the math.
- Listen to “No” people. Real estate is full of Yes people. Realtors, mortgage brokers, contractors – their livelihood depends on telling you Yes, your loan / purchase / remodel is doable and is an AWESOME idea. So when someone tells you No, listen up. It shows integrity and realism. Both are valuable traits.
- Forget the cap rate. Focus on the estimated rent. If you’re not getting realistic estimated rents from the people helping you, it’s impossible to come up with an accurate cap rate. Cap rates are ONLY useful pieces of information if you can be confident that you are getting accurate estimates for rent, expenses, etc.
- Always get a second opinion. Or a third. Every time I’ve pushed myself to go the extra mile and get more opinions, it’s paid off.
At this point, I’ve found my first deal. Now I just need to figure out if it’s a good or bad deal!
And I’ve found a team…but are they my dream team?!
You’ll find out in Part 4.