I recently had the opportunity to network with about a hundred real estate investors from the Midwest. The most entertaining part of the gathering was the “purchase war stories” we shared in the lounge. Not only were investor’s having fun making jokes about their failures but we were learning from their mistakes no matter how mundane or…odd their mistakes were. Here’s a few of the reminders we got over drinks that night.
Lesson 1 (and 1 ½) Decide (or reaffirm) what type of property you want to invest in before moving into a new market (and take off your love goggles).
Joe had spent the first 10 years of his career as an investor in Joliet, IL. He had focused on single family homes in the city, mostly by accident. He was ready to expand into another market so he started looked at Schaumburg. He quickly fell in love with Schaumburg but was having trouble finding SFR deals that made sense. So he changed his approach to invest in what was available. His eyes caught a mixed use building within his price range. A fixer-upper with 3 residential upstairs and two commercial downstairs. The commercial units were a mess and vacant. The residential had one vacant and 2 occupied units in…decent condition. Despite not having any knowledge or passion for commercial Joe proceeded with the deal. He rationalized it as a way to get his footing in Schaumburg. His excitement for the market got in the way of him making a sound investment decision for himself.
Lesson 2: Visit your new rental markets…more than once and at different times during the day.
Mallory and her husband moved practically cross country for his job with a news corporation. They decided to sell their rental properties in North Carolina where they had been living and buy new ones in Minnesota, their new home. They were invited out to a co-worker’s house for a Saturday afternoon barbeque in a suburb of Minneapolis. During the 4 hours they spent their midday, Mallory and her husband really liked that area of town and decided to start buying rentals there. It had local amenities including restaurants, grocery and chain stores. A few weeks later they found a deal on a triplex with 2 vacants and went to view it Saturday afternoon. Mallory and her husband quickly moved forward and closed the deal. Due to the old house set-up there wasn’t a driveway which they didn’t think would be a problem. Until a couple months after their first tenant moved in the tenant began complaining about not being able to find parking when they got home from work. The triplex was situated in a 3 block radius that was very popular with the after-work drinks crowd who frequented the pubs and bars. Their tenant was having to park 4 blocks away most nights.
Lesson 3: Know thy neighbor’s….even businesses.
Steve and Karen regaled us with their property “horror” story purchase in Des Moines area. Steve and Karen made their first purchase 17 years ago with a quad located in the suburbs of Des Moines. It was a beautiful ornate turn of the century home previously converted into 4 apartments. When viewing the property they noticed the bank a block over, and the fast food two blocks over. There was a commercial property with a medium sized parking lot located next door. The business was quiet didn’t seem to attract noise and usually had no more than 5 cars in the parking lot when they drove by. A few weeks after viewing the property they made an offer and closed. What was the issue? Their commercial neighbor was a business named “Closet Trinkets”. Steven and Karen never went into the business prior to purchase. They thought they were covered because they drove past at different times as suggested by their mentor at the time. Steve & Karen learned the truth about Closet Trinkets when Karen dropped in hoping to buy a birthday gift for her mother. It wasn’t a place she was going to find a gift for her mother, but it was definitely items you keep in a closet…or nightstand. It was an “adult goods store”.