My First Real Estate Investing Deal And What You Can Learn From It
Below is a MRR and PLR article in category Finance -> subcategory Real Estate.
My First Real Estate Investment: Lessons Learned
Summary
Discover the importance of turning properties quickly for cash in hand as a real estate investor.
Introduction
Every real estate deal offers a rich blend of profit and learning. When I ventured into real estate investing, it took me eight months to commit to my first deal?"a blend of opportunity and education.
Networking Pays Off
My initial deal emerged through networking with my local real estate investor group. A fellow Memphis investor uncovered a potential gem: a 3-bedroom, 2-bathroom home in a reasonably priced neighborhood. This investor facilitated a wholesale deal, assigning the contract to me. I purchased the home for $58,000, with $5,000 going to the investor for passing on the contract and $53,000 to the seller. Paying cash allowed me to also cover $4,000 in necessary repairs, with the property's post-renovation value estimated at $95,000.
Lease Option Decision
I opted for a lease option approach. I advertised using yard signs, flyers, and online listings. A seasoned investor advised me to sell the property quickly for immediate profit, but, being new to the field, I sought to maximize my returns.
After a month and $800 in advertising expenses, I secured a tenant willing to pay a $2,500 option fee and $875 monthly rent, with a sales price set at $99,000. Timely rent payments would contribute $100 monthly towards the purchase price.
Weighing the Options
Had I sold the property immediately, I might have earned around $20,000 after taxes, fees, and a $7,000 tax bill. Instead, through the lease option, I could potentially sell at $99,000 and net about $35,000, taxed as capital gains. Despite this higher potential profit, having quick access to cash might have allowed me to pursue more investment opportunities.
Tenant Experience
Unfortunately, the tenant frequently missed payment deadlines, incurring additional fees. On a positive note, their financial situation has improved, and the property's current market value is at $105,000. The tenant's father, a mortgage broker, has offered to assist if eviction becomes necessary.
Ethical Perspective
On a personal level, lease option deals are rewarding as they aid individuals working towards improving their financial status. I prefer leasing to those genuinely progressing in their credit and employment status, ready to buy within 24 months. With consistent payments, refinancing opportunities become feasible through mortgage brokers.
Future Plans
If the tenant doesn’t purchase within two years, I can pursue another lease option or sell outright. Despite healthy cash flow, I lean toward selling to reinvest in new ventures.
Key Takeaways
1. Effective Advertising: Yard signs with flyers and online images are crucial?"yielding significantly more leads than newspaper ads. Highlight essential areas like the kitchen and bathrooms in descriptions.
2. Quick Sale vs. Lease: In hindsight, selling quickly to reinvest may have been more lucrative. Novice investors should prioritize immediate profit before considering long-term strategies.
3. Tenant Selection: Patience in tenant selection can pay off; waiting for a stronger candidate might be worthwhile.
4. Be Mindful of Legal Constraints: Lease option transactions aren't permissible in Texas due to specific laws, but remain viable in Tennessee, though local regulations can vary.
By sharing these insights, I hope to aid others in navigating their own real estate ventures effectively.
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