“Well, that escalated quickly.” – Ron Burgundy
There is an interesting phenomenon in the real estate investing space known as The Law of the First Deal. It proposes that once momentum is built up through your first deal (the smallest and most difficult to obtain), the subsequent deals that follow are faster to come, easier to complete, and your career as an investor will exponentially grow from there.
So it shouldn’t have been much of a surprise when we went under contract for our 2nd property the same week we were closing on our 1st.
It was… it was a BIG surprise.
The Opportunity
Similar to The Jefferson, this 2 bed / 1 bath duplex was sent to us from a wholesaler. Each side was about 1000 sf and the property was situated on a 1/4 acre corner lot. Unlike the The Jefferson though, the neighborhood demographic was much more working class. The homes didn’t appear to be in severe distress, but they were certainly old and run down.
However, the neighborhood had access to good quality schools, nearby amenities (a shopping mall, grocery store, and Starbucks), and a year-after-year trend of crime reduction. Coupled with the character of the older style homes and wide, tree-lined streets, we couldn’t help but see the Lexington as the first step to fulfilling our ultimate mission.
The Strategy
The asking price was $60k. Both sides were rented out at $575/mo and $500/mo. The (then) owner had just replaced the roof, updated the piping, and installed central heat and air on one unit. We offered $53k with a closing date of mid-January to give ourselves plenty of time to secure financing over the holiday season.
Our plan was slightly different to The Jefferson project, but just as simple. Since the duplex already had tenants, we were going to use a hard money lender to finance most of the purchase cost and enjoy the “practice” of being landlords. Then as the tenants left, we were going to use our renovation experience from The Jefferson to plan and apply for bridge funding to update the duplex.
Totally straightforward, right? Wrong!
We scheduled the inspection for the first week in January, giving the tenants plenty of notice and allowing for minimal disruption during the holidays. The results came back quickly.
Our original impression of the property was correct. The structure and foundation were solid. The shock was in the severity of the cosmetic condition of the property. The interior was so run down that there was no way we’d be able to secure lending without a detailed exit strategy lined out — renovation design, plans, estimates, ARV, the works.
We were due to close in less than two weeks!!!
With some out of the box thinking, persistent pursuit of resources to assist us along the way, and a number of late nights of research, we managed to pull it off. Stay tuned for Part 2 of the tale of The Peel at Lexington.
In the meantime, we’d love to hear from you! What were some of your most memorable “oops” moments from the beginning of your real estate investing journey?
