I decided to create an episode to talk about the lessons I experienced last year when I grew my portfolio from zero to 24 properties in less than six months. You can check out the link right here. Before I even dive into those lessons learned, I simultaneously tackled many closings. That’s how I managed to grow my real estate investments in less than six months exponentially.
1. Never try to do four closings at the same time
Last year, I did this crazy thing where I tackle or try to tackle a bunch of closing simultaneously, and I try to take care of everything, I think, in less than three months or so. I went back down on memory lane and wanted to ask myself if I were to share any lessons learned with my viewers, which ones will those be? I’ve narrowed it down to three on the list.
The first one is never, ever, ever try to do four closings at the same time. Last year, I was working on the purchase of my 17th unit, and at the same time, I was working on two separate closings in Florida. All of that while working a full-time job. It was rather insane. I do not think that it was going to be such a big deal because I thought, “I still have to compile W-2s, or I have to compile bank statements. How difficult can it be?
I’ll do the paperwork compilation, which is distributed to four various channels simultaneously, and then have it take care of it. Little did I know that it was a lot more complicated than just compiling many documents. I have to read a lot of documents, a lot of appraisals. I got my credit pulled four times, and it was not fun. What happens is that I tried to accomplish too much, and I almost ended up accomplishing nearly nothing because two of my real estate deals ended up being rescheduled. After all, I couldn’t meet the deadline.
It cost me money. It cost me money because they have to re-run my credit again. After all, the deal or the agreement that I had with the lenders would give me a set rate when they initially pull my credit. Because I didn’t close on time, they had to go ahead and pull my credit again because they needed to verify that nothing had changed. I may be advantageous to you for some people because you could save some money and interest rate if your credit manages to improve, but in my case, it did not happen because my credit went down a little bit. After all, I ended up doing the stuff that I usually do with my credit cards.
I ended up pulling some money and using it as a down payment. My interest rate went up by 0.5 or something like that. I also had to pay the penalty fees. Never, never, never try to tackle so many closings at the same time while you’re doing a full-time job. Even when you’re fully dedicated to doing real estate, that can still take a toll on you. Something to think about if you’re planning on doing that. Try to be careful and if you are planning to do that, then make sure you have a better system in place on the one I had. Definitely, a costly one.
2. Stay more on top of appraisals
The second lesson I had was that I needed to stay more on top of my appraisals. During my 17th unit purchase, many appraisals were going on, as you know. Way too many of them. What happened was that the bank they work with a specific company that they do their appraisals with. Later, I found out that they did not always have the same guy to do the appraisals. Let’s say they send one engineer to do three, then they send another appraiser to do four more and so on. What happened was that in the end, I wind up with a bunch of different appraisers that have different pricings.
Some were priced a lot higher than the others and vice versa. I took an average of the lowest and the highest, and I figured, “This is more than enough because the value has to match or at least exceed or be comparable to the amount that the bank is lending you. Suppose the appraisal comes out saying that you’re applying for a loan for $100,000 and the appraisal says that your house is worth $80,000. In that case, they’re not going to lend you the money, or maybe they will, but they will only give you $80,000, and then you have to figure out how to come up with the remaining $20,000. That’s exactly what happened to me.
My average wind out to be on the spot, thinking that I was accurate. It turns out that a week before the closing, my broker winds up calling me saying, “You’re going to have to put $30,000 out of your pocket because the appraisals came back low, and the bank is not willing to loan you the amount that you asked.” Part of it was my fault because I did not stay on top of it. It’s something that I could’ve prevented. I was so traumatized by the experience.
I was working with an underwriter who was also inexperienced. Maybe this person did not care and made it so difficult for me that after closing, I didn’t go back and reference back to documents until at least a month afterward. When I went one by one, I added all the numbers, and it turns out that the appraised values for the properties that I purchased wind up being, I think, $50,000 more than the amount that I was asking the bank to borrow.
In reality, the appraised value was a lot more than enough, but because I didn’t stay on top of it, I wind up having to put an additional $30,000 out of my pocket. Depending on how you look at it, one can say, “I lost $30,000 because I have to put it towards this engagement, and that means I could’ve bought another property, but I could not because I use that money to put it towards the purchase of the 17th unit. I chose to look at it as something positive, meaning, “I put $30,000 off my pocket; therefore, I don’t have to pay interest on those $30,000. It helps me sleep at night.
Otherwise, I’ll be extremely frustrated knowing that I did not stay on top of it.”
3. Use the property inspection reports to your advantage
The third lesson I have learned from last year will be to use the property inspection reports to your advantage. Use it in your negotiation. It happened right around when I was closing my 17th units. I was also reading the property inspection for one of my properties that I was working on closing in Florida.
What happened was that I was extremely focused on anything that was structural damage, or maybe some roof damages because usually those are defects that cost a lot more money. I remember sending my property manager, he took a walk through the house, and he also thought, “Everything seems to be in place.” I think mainly because I also told him what to look for. In reality, I did not mention to him that I needed him to pay attention to something that was on report that was referencing the windows. I did not think it was that much of a big deal. I remember the inspection report saying something about window damage, but I thought it would only be a couple of $100 fix, not worth delaying the closing.
It turns out that after I close, my property manager went over to get the property rent ready, and it turns out he realized that there were termites in some of the frames in the windows. He ended up calling a specialist, and this person went in, window by window, and then realized that one the windows were not built up to code. Two, they were not put in by a professional or done the proper way.
What this contractor did when they were flipping the house was that this person just pushed the window through force into the frame. That’s a liability for me and at the same time because the windows were not installed properly, any time there could be a potential rainstorm or any major rains water was going to come through the windows and ultimately, wet the floor which had carpet. You can see the whole mess coming out from there. Long story short, the window fixes turned out to be customizable windows as well. It wasn’t the random windows that you could’ve sent somebody to Home Depot, pick up, and only install them.
They had to be in particular order, and they had to be specially made. In the end, this whole mess cost me. I think, over $8,000 worth of repairs. Not to mention the hours that I had to pay my property manager to find the window specialist and oversee the project for me and the two months that I lost in rent. Because by the time the window repairs were finished, we were somewhat like at the beginning of the new month, and it did not give us sufficient time to market the property so we could build a brand attendant on time.
I had to wait two months around, two months without any rent that turned out to be a costly mistake. Make sure you learn from my lessons, don’t do those, and be on the lookout for inspections.
4. Never argue with your underwriter agent
The last one is a bonus that I thought of. Never, never, never, never argue with your underwriter agent. I made that mistake because I was just either frustrated or maybe. I ran out of time because I was trying to meet a deadline.
Again, this individual either did not care or was not good at what he did. What happened was that I kept on sending the same documents over and over again. Then the very next day, I would receive an email saying that “Hey, I did not receive these documents. How come you haven’t sent them to me?”
I should have funneled things through my broker and then let my broker deal with it, but in the end, I ended up to take matters into my own hands, and it did not wind up well. That caused me not to meet the deadline for my closing, and, in the end, I ended up paying a lot more money to reschedule the closing. Also, I had to pay a higher rate just because my credit went down by a little because I was trying to tackle too many things simultaneously.