Buying our first property was an enjoyable lead-up to a scary finish. Here’s how it happened in 8 easy steps plus a kind of scary step and a very scary one.
- Read Robert Kiyosaki’s book Rich Dad, Poor Dad. This planted the real estate investor seed.
- Researched and read more about real estate investing. This led me to biggerpockets.com
- Reading the blog led me to the Bigger Pockets podcast. I started at episode one and listened to an episode while driving each way to work.
- Found (on biggerpockets.com), a real estate deal evaluation spreadsheet template. Started looking up listings in my area and plugging the data into the spreadsheet.
- After doing many dozens of evaluations, I started building a team. I met with real estate agents, bankers, accountants, lawyers, and financial adivsors to get a team together.
- Wrote and shared a business plan with the team members that we selected.
- Created Clapp Properties, LLC own and operate our first properties
- While continuing to evaluate deals, started looking at properties.
- Made an offer on our first one (kind of scary)
- Actually purchased one (very scary)
Step one was the most unexpected. I was taking a road trip with my daughter and wanted some diversity of listening materials. I was taking her to stay with her grandmother for a week, so we’d be together for an 8 hour road trip, then I’d be solo for the 8 hour return journey. I knew that we’d listen to music for most of the outbound trip, so I found some audiobooks at the public library to listen to on the way back. One of those, and the first one I listened to was Rich Dad, Poor Dad by Robert Kiyosaki. I had no idea what it was about. I think that it might have been both the cover design, and the fact that I had listened to many of the other audiobooks at our library already.
That book changed my life. It opened my eyes to a completely different way of looking at the world. I was hooked by the time I got home.
Step two was to do a little more research. I have been known to fall for a crazy scheme from time to time. I wanted to see how legit this way. I’m not sure how, but I stumbled upon biggerpockets.com. This is a website built for real estate investors. They have a wealth of material in the form of blogs, forums, articles, tools and a podcast. I started by reading some blog posts and articles.
It was a small leap from step two (reading on biggerpockets.com) to step three, listening to the Bigger Pockets podcast. At the time I had a 45-50 minute commute each way to work. I was able to get almost a full episode in each way. I started at episode 1 and just started listening. There was great content in those episodes. I learned so much more about what kinds of real estate investing there was, what pitfalls to watch out for, and most of all, to not fall into the trap of “analysis paralysis”. At this time I was also getting any real estate investing book I could from the library and reading those as well.
Eventually I came across a real estate investment deal evaluation spreadsheet template that one of the big names shared on biggerpockets.com. I copied it into google sheets and started going to town (step four). I’d look for properties on realtor.com and plug the numbers into my spreadsheet. I used an online mortgage calculator to estimate the mortgage payments and an online rent estimator to estimate what rent I could charge. I knew the area that I wanted, and what the cost of utilities and other costs might be. I was looking for any kind of Net Operating Income (NOI).
Doing evaluations is pretty easy, and quite enjoyable. I’d find 6-10 properties in an evening and put them in my spreadsheet. I created a template tab and then duplicated that tab and created a unique tab for each address. If the numbers were nowhere close I’d delete and move on. If there were ways to get it somewhere in the positive cash flow then I’d keep it. Eventually I had dozens of tabs of possible deals.
As I did this more, and became interested in actually becoming a real estate investor, I did what Kiyosaki and many of the others on Bigger Pockets suggest and that is to assemble a team (step 5). I met with a few accountants, and lawyers and real estate agents primarily, not so much interviewing them, but meeting with them, talking about what I wanted to do and seeing how they could help me with that. We eventually made decisions on an accountant, lawyer, banker and real estate agent. At the same time I was looking for a financial planner. This was not so much for the real estate investment, but for the collections of retirement plans that I had from various employers.
Step six was to then establish a business plan. This took some research in other areas that were new to me. I never took any business courses in any of my schooling, but it was not too challenging if you know where to look for good help and advice. We shared our plan with each person on our team.
So we had our team and we had our plan. The accountant and lawyer advised us on the type of entity for our plan. Once the plan was established, our lawyer drafted the paperwork that established Clapp Properties, LLC (step 7). Our very first company! Even though the company had very few assets, it existed and it was ours. It was a momentous occasion. Things were starting to get real.
During these steps, I was still checking realtor.com several nights per week and evaluating many properties each week. Step eight was to work with our real estate agent and start looking at some of the properties in person that looked good on paper. Our agent was great. She showed us dozens of places on several occasions. Some I looked at by myself. We tried to both look at them (my wife and I) as much as possible. There were days where we’d bring our kids with us. We looked at duplexes, triplexes, four plexes and even a six-plex. It was very good experience seeing places in real life, seeing how different landlords managed their properties and how different tenants lived. We knew how much we had to work with and discussed with our agent different offer strategies that would work on some properties, but not others.
The trajectory when one starts evaluating deals, then going and looking at properties, gets one to a point where eventually you make an offer on a property. That’s step nine and the first of the scary steps. Steps one through four are pretty much on your own. If you gave up at any point, the only people who’d know are people you told that you were even thinking about being a real estate investor. This is like walking over to the deep and heading toward the high diving board. Maybe you’re heading there, but maybe you’re heading someplace else in the same general direction.
Step five makes things a little more real. You’re out there talking to professionals about how you’re going to be a business person and looking for people to work with. It’s like you got in line with the others who intend to make the climb.
Step 6 is like you’re at the bottom of the ladder and have grasped the rails to start climbing.
Steps 7 and 8 and climbing the ladder. Now some real time and money is in play. You have your name as the registered owner of a business whose purpose is to invest in real estate.
Step 9 is when the scariness begins. This is where we sat down with our agent and drew up an offer on a property. We were on the diving board, looking out and down. The first offer that we made was not accepted. We went back and forth, but never came to an agreement. After the first one, the second and third were easier. We were taking steps toward the end of the board.
Step 10 was the big one, the scariest. It was the offer that was accepted. We arrived at the edge and jumped! It was petrifying. All of the things that could go wrong went through our minds. But it was done. Offer made. Offer accepted. We were on the hook.
It’s been two years since we took possession of our first property. Clapp Properties, LLC has real assets with real income and real expenses. I have no regrets. The property we bought is a single family residence and came with a tenant in place. Since then she’s moved out and we did our first tenant search.
We’ve had some minor issues, but nothing big. I’ll save those for a part II some time down the road.
I’m glad that on some fateful day in the past, after having glanced at Rich Dad, Poor Dad, I finally took it off the shelf and listened. The rest, as they say, is history.
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