Initial Purchase (Negotiations)

My initial purchase was a series of negotiations that I truly felt would never end.  In that market, where prices increased about 10% in a single year, sellers were being flushed with offers.  I put in more than five offers on different properties and all were denied.  Again, I was mostly outbid by other large investors who came in with cash offers well over the asking price.  The offers that I put in were usually no more than 5-10k over the asking.  The reality of the market was that offers below this would definitely not be chosen.

Property Inspection

The property that I eventually chose was actually one that was recommended to me by a family member.  There were two properties next to each other that had been on the market for a rather long time.   I had disregarded the property because of its location.  I did not believe it would be a good area to invest in.  This family member who knew the area stressed that it was in a bad zip code, but in secluded area without many of the problems of the surrounding area.

I drove to the area to visit the property and the neighborhood.  Neither was particularly impressive but it did seem workable.  The worst problem with the property was the lack of a fence in the closed parking are to the back of the house.  In this area this meant that the backyard had become subject to illegal dumping.  There were mattresses, couches, and even shopping carts but problem this can easily be fixed with a fence.  The other main problem was that there was a rather messy tenant currently in one of the units.  Nevertheless the property would generate cash flow if managed properly so I put in a bid subject to interior inspection.

A week passed and the bid was accepted.  I was very surprised because sellers usually prefer to avoid FHA offers.  FHA appraisal inspections are notoriously strict and consistently headaches. While inspecting the property it was fairly evident that this tenant would most likely need to be evicted.  Not only was the apartment filthy, but to me it seemed like a public health issue.  They had two small children which they had living in unsanitary conditions.  I was open to letting them change their ways once I acquired the property but that was a long ways away.

Appraisal Results

When the appraisal results returned we received the expected news.  The bid I had put in on the house was greater than the actual value of the home.  The asking price was at 117k while the appraisal came in at 103k.  I actually believed this would be the end of the deal as the seller would be getting 14k less than originally agreed upon.  Surprisingly the seller was willing to negotiate, likely because his property had been on the market for so long.

The seller agreed to sell the property and make all of the fixes required by the FHA inspection.  FHA inspections not only focus on the price of a home but on the safety of the home for the buyer.  This is why their inspections are often more stringent.  The deal with the seller was that the property would sell at 105k and that I would cover the extra fees for both parties.   This mean that my down payment would be 3.5% of the price of the property along with an extra 2k and the fees.  I found it to be an acceptable deal especially for someone breaking into the business.

The deal was sent to the underwriter and it was another month before anything was heard.  There is a certain time limit within which the deal must be completed or the seller is able to choose another bid.  Luckily the deal closed in time and I purchased my first property.

Be Prepared

The purchase of a property is always a very stressful experience.  The best way to handle the experience is to research thorough beforehand and to have a very trusty broker.  Take a chance and enjoy the process.  It’s a once in a lifetime experience purchasing your first property.