It was December 28th, 2016 and I saw a HUD home online for 42,000 dollars. It was a two bed, two bath place that I didn’t think looked half bad. My wife…not so much.
Still, my enthusiasm was infections and I convinced her to check it out with me (or maybe she simply succame to my pleading to check out the property). We were able to get ourselves into the property the next day despite heavy snow and the holidays. We were only in town for four more days, so time was of the essence. We had a 4 month old baby and were performing a whirlwind tour to introduce him to families in two different states and our trip was coming to an end. Not the ideal time to purchase a property, but stuffed with tamales, buñelos, red chile and other New Mexican Christmas fare, we were contented and undeterred.
The hardwoods were in terrible shape, there were a couple of holes in the walls and the place was outdated. But, for the most part, it was in okay shape. I called an experienced investor friend of mine, Dave Torres to ask what we should offer. He quickly told me I should offer half of asking price. Having already gotten excited about this property, I hesitated and told him that I didn’t want to lose the house. In the end, I ended up offering 34,000 for the place, HUD countered at 39,000 and we accepted. We were going to be home owners!
Figuring that the house could be worth 85,000 dollars, we decided to perform the necessary repairs and get it rented. I thought we could get 750 dollars a month and figured we could do a cash out refinance after 6 months, pull our original investment back out and have a place that cash flowed for what amounted to free.
Now came the hard part…we had a purchased a house in need of repair. We had no electricity or water. We wanted to replace all flooring, paint the interior, perform sheetrock repair, change light fixtures and more. Only problem was that we didn’t have a contractor or handyman. So I set about looking for one. After calling a number of people, we got three quotes from various people who we were 2, 3, 4, 5 degrees of separation away from people we actually knew. To give you the most poignant example, one person we found who bid the job was my (1.) sister-in-law’s, (2.) ex-boyfriend’s, (3.) parent’s, (4.) neighbor’s, (5.) handyman, José. When I called José, he asked how I got his number, and it was pure comedy trying to explain. In the end (and to this day) we weren’t 100% sure where the connection was made!
As I imagine most new investors do, we went with the cheapest bid. We were off to the races.
In my next blog, I’ll detail some of the pitfalls we encountered including vandalism, disappearing handymen, code violations and more.
Part 1 of a 3 blog series. See next post: Limping Through Our First Renovation