The first real estate deal we ever did open our minds up to the many opportunities that we were not expecting to be available in this business. We didn’t expect that we would achieve the results we have today, and doing our first deal was quite a breakthrough for us. It allowed us to think large and the results were bigger than we ever expected. We knew we could only get bigger and bigger results if we kept doing what we were doing and kept learning.
When we started with our very first deal it was a rehab project, or flip, I was in the family business which was not doing too well, and I told my father that we should do something else. The current business was not working out, and I had heard from someone that real estate was a good business to get into and that we should try it out. Initially we wanted to buy a house, fix it up, and sell it. We spent a lot of time looking for money, but it was hard to find someone who would lend to us because of our lack of experience. Then my dad and I decided to apply what we had learned from a mentor, find the deal and the money will follow. We spent over six months looking at over one hundred properties until we found one that we liked and put it under contract. We risked a $3,000 deposit that we had to put on a credit card as we had no other money. We finally found an investor and bought the property for 60% of its market value with the expectation of selling it for $105,000.
We expected to spend in the area of $15,000 to $20,000 for repairs. However, after hiring a contractor and finding out the house needed air conditioning, had a lot of mold, and was in pretty bad shape, we were disappointed to learn that the property needed lots of work done to it. There was only so much money we could put into the repairs because we also had to consider our closing costs such as commission, taxes, and insurance.
Additionally, our investor who was putting up all the money for the purchase and repairs, was going to get 50% of the proceeds on the sale of the property. Although we tried to control the expenses as much as we could, we ended up spending around $30,000. We were planning to sell the property for $105,000 after all closing costs and such, and were expecting to make about a $10,000 profit, with $5,000 going to the investor who put up all the money and $5,000 for us to split between myself and my dad. After looking at these numbers, we got really nervous! This was not going to be enough profit for our investor and we were merely making any money after all the hard work and energy. Something was just not right.
Looking and calculating numbers over and over again we soon discovered that we had not done an accurate comparable within the area. After discovering this and realizing that we had no idea how to get an accurate comparable on the property we decided to call a friend realtor who had offered to help. He told us he wanted to take a look at the property before we listed it for sale to make sure we were on the right track. We had met him a while back and he knew this was my dad’s and mine first rehab. (CONTINUED ON BLOG POST #2)