It’s true. Less than a year ago I was the inspired newbie soaking up as much information as I possibly could. I finally made the plunge with my first rental after chasing some deals and having the courage to walk away from them when we couldn’t reach an accord. That’s one of the best tips I can give the people who’ve yet to do their first deal:
1. Be okay with walking away from a negotiation. Have a set price in mind where you’re sure your numbers work. When you find a property, put in an offer and negotiate if the market allows for it (anywhere close to Denver doesn’t really allow that right now). If you can’t negotiate anywhere within your preferred range, it’s OKAY to walk away and on top of that you have some experience under your belt. Don’t sacrifice your desired cash flow threshold for a desperate desire to be in the investment scene and it will reward you.
I walked away from three deals before I got my first one and this rental cash flows WAY better than the others would have had I settled. Keep in mind I’m also getting better Cash on Cash Return on this deal as well. Introducing myself to the neighbors near this rental opened the door for my fourth rental, bringing me to my next point:
2. Share who you are with your community and opportunities present themselves. We love talking about finding mentors and talking to people about what you do. It allows for partnerships, more efficient business practices, and most of all, DEALS! I introduced myself to the neighbors of my first rental as an investor and as a result, people who wanted to sell their neighboring town home a few months later came straight to me and we were able to work a deal without realtors and instead through real estate attorneys. This was a fantastic way to negotiate a value deal for BOTH sides since the seller is no longer paying a hefty commission fee for two realtors. We instead had real estate attorneys be our advocates which cost the seller about $500 for that deal (we wrote in the contract they would pay it).
Speaking of unusual deals…
3. You never know until you ask. Don’t think the seller will pay closing costs? If the market allows for it or you’re willing to lose the deal, why not try it? The worst that can happen is they take another deal in a competitive market… but they may also say no and have a counter offer. A seller somehow agreed to pay my closing costs in the Denver market back in December (unheard of) but I was okay with losing this deal if they passed on me. That one little question saved me $3K.
There are many ways to invest. I chose to invest with the Cash Flow method (what’s the average cash flow per month per rental, and how many rentals do I need to replace my income?) and I’ve learned:
4. Cash flow is not a given, especially when you have HOAs. The rental market fluctuates as do HOAs. All but two of my properties have HOAs and of those, two are around $30/mo, and two have rather hefty HOAs in the same complex but cash flow really well. Welllllll… the HOA came back and raised monthly assessments by 20% last month. Ouch! The community desperately needed it and while I do support this increase (which will, in turn, increase the rental value of the home), it cuts into my FI plan. Luckily with this collective $80/mo raise in fees for these two properties, they still cash flow handsomely. This is why I strongly recommend you have a cash flow cushion above your minimum desired if you’re investing for Cash Flow.
This is strictly speculation, but I think most never get started because they’re afraid. Afraid of the repair costs, eviction horror stories, and constant attention tenants may present with repair issues, etc. Like anything, if you do your homework and have outside sources verify the research you’ve done, you’re likely in a good place. I’m still learning a LOT but as Joyce Brothers once said: I think we should follow a simple rule: If we can take the worst, take the risk.
Written by Sarah Pritch, US Air Force
To see more of Sarah, check out her recent podcast: https://www.youtube.com/watch?v=NO8p6RM2IWo