How a real estate investment that looked bad became a winner | Think Realty | A Real Estate of Mind

How a real estate investment that looked bad became a winner

How a real estate investment that looked bad became a winner
Kevin Guz

It’s kind of nice when you get a happy ending to what you think is going to be a very bad story. Unfortunately, they don’t all work out this way. I have other stories I thought were going to have happy endings and didn’t.

I will share with you a real estate investment in a single-family home that I really didn’t want to buy and I could not see the good in it, however, I ended up purchasing the property and I learned plenty from it.

I am a HomeVestors franchisee and real estate investor in Dallas and I diligently work for leads to purchase homes all over the Dallas area and the surrounding communities outside Dallas. Some of those communities are very different than Dallas. They are small, rural cities with populations under 5,000 in some cases. We do regularly market in those areas in an attempt to get leads on potential properties to purchase.

This scenario happened to be one of those houses in one of those smaller markets, a very remote rural market outside Dallas – over an hour away. Because we market aggressively and we spend a lot of time and money and invest a lot of intelligence into how we market and who we market to, when those leads come in, I go on those appointments. I go on those appointments even if the leads are a little inconvenient – an hour or  more away – or even if they appear to be a little unattractive on the surface based on the pre-analysis. If those sellers have contacted us as a result of our marketing, then I am going to be there to see if I can solve their problems and potentially purchase their houses.

A drive in rural Texas

How a real estate investment that looked bad became a winner blog by Kevin Guz for Personal Real Estate Investor MagazineSo that is exactly what I did on this one.

I  jumped in the car and began that hour-and-a-half trek to that property out in rural Texas.

As I continued to drive down the road, I realized and started to think, “Wow, this is a long drive. This house is probably too far for me to rehab and resell on the retail market.”

I knew it would just be too difficult to manage the project if I was going to drive an hour and a half every time I wanted to check on progress or solve a problem or pay a contractor.

I continued driving and thought, “Even if I did buy this house and had to sell it, I have no idea on this particular market. This is really outside my area of familiarity and expertise. I don’t know the types of finish-outs that appeal to buyers in this market. I don’t know how long it would take or how to price it or who it would appeal to.” “It may be a challenge to sell this one on a retail market where I do not have the familiarity – I don’t even have the contacts for a good Realtor to market it.”

As I drove down the road I even thought, “What if we kept it as a rental and added it to our portfolio?” But I could not help thinking this was really too far away to manage as a rental. We have our own in-house management. Did I really want to maintain and show a rental this far from our office?

Despite my concerns, I continued on and had a very productive and pleasant meeting with the seller at the house. At the appointment, I made an offer that compensated for some of the challenges and concerns that I had thought about – the distance, the difficulty selling on the retail market and the challenges to keeping it as a rental – I offered accordingly. It was not a low-ball offer by any sense of the word – that’s not what we do and that’s not our objective. The offer did accurately reflect the challenges of purchasing a property in this remote area.

A few days later, after I left the house and left the offer with the seller, as I always do on all my appointments, the seller called back and accepted it – almost to my dismay. I was caught off guard. I did not think it would be accepted. To be honest, I did not know if I really wanted it to be accepted it. As any good investor does, we stand by our word. If we offer to purchase a property, then we are going to follow through, and we are going to purchase it according to those terms – even if there is some hesitation. We will stick to what we committed to the seller.

Ultimately, we closed on that sale. We decided on a buy-and-hold exit strategy. Now that we had that property, we were going to keep it as a rental property. It seemed the best strategy based on how we purchased it and what we purchased it for and what we thought we could most effectively do with it.
So we rehabbed it and got it ready for our first tenant. I made that hour-and-a-half drive out there, put a sign in the yard after our final walkthrough, and it was ready to market as a rental. I began the drive back to Dallas and my phone started to ring, immediately. It rang constantly throughout the weekend with tenants interested in renting that property.

The phone would not stop ringing

As the phone continued to ring on Saturday, I remarked to one of the prospective tenants who called in, “I am not from that area; I am from Dallas, and we are real estate investors and a HomeVestor franchisee and this area is new and unfamiliar to us. We just placed that rental sign in that yard yesterday, on Friday, and our phone has not stopped ringing.” She proceeded to tell me that, “Your phone will not stop ringing until you take that sign down.”

I was pleased to learn from her that there is a big demand for rental properties in this particular town. It is a small town. Housing is limited. Schools are excellent. The community is strong, and the area is very desirable. And for those reasons, this small town just did not have rental properties available so when we put that sign in the yard, it quickly sparked the attention of the local residents.

It was exactly the opposite of what I thought would happen. I had originally thought, “Wow, this is a little town; who is going to be moving here? We are going to put this sign in the yard, and we better get ready to hold it for a few months before we find a tenant or anybody who wants to rent it.”

We just did not anticipate that type of demand in that small, rural community.  I was wrong. We rented that house very quickly to a husband and wife and two small children. They were born and raised in that town and had moved away to start their careers and their family, and their goal was to get back to that community where they grew up so they could raise their children in the same town where they were raised.
That family is still in our rental property, today. Their objective is never to leave that community so we think we have many years to come with a great tenant. And we are confident when it does come time for them to move, we are going to be able to rent that home, again, very quickly.

We learned a lot about these rural communities by stepping out of our immediate market. And That is the learning for the part-time or new investor who is considering a property far from home. You may not want to do it immediately – but don’t eliminate those properties as an investment opportunity.

We learned some very important lessons:

No. 1 – There is very limited inventory in these small, rural communities

That means there is less competition when you put your “For Rent” sign out on your investment properties. There are not as many homes to choose from as there are in the larger markets, making these smaller markets very favorable rental markets.

No. 2 – Less competition

There are not a lot of other investors willing to go out to  smaller communities or smaller markets. When we did, we were able to purchase that property at a very attractive price. In the rural markets, it is far less competitive, which lets you purchase properties at far more attractive prices than in large metro areas where many investors are actively competing to purchase investment properties close to their homes where they are familiar and comfortable.

No. 3 – These communities are far less transient than the major metro areas

People move in, and they don’t move out, which is great for you as a real estate investor. You want your tenants to stay. And in these rural communities, we have learned, that is more of the lifestyle. They move to those communities, and they stay in those communities. They stick around in your rental because there are just not many options to move across town like there are here in Dallas where you could move every year to a different property if you chose.

No. 4 – The word-of-mouth marketing we received on this property was incredibly powerful

Many of the prospective tenants who called said, “Hey, I am calling about your rental. My friend drove by, saw it, and called me.” In these small towns a lot of people know a lot of people. These are tight-knit communities. When a property hits the market as a rental, people talk. People have their eyes out for one another, and they did our marketing for us. We stuck in the sign in the yard, but the town took care of the rest. The tenant we did put in the property found it because one of their best friends lived right around the corner and called them, saying, “You are moving back to town, and I just saw a rental hit the market and it will be perfect.” It was perfect.
The moral of the story is, when you start out as a real estate investor, I recommend you stay close to home and purchase properties in markets where you are familiar. But don’t limit yourself as you go forward in your real estate business. As you grow, you will venture out into new and unfamiliar markets. But don’t be afraid. You will see that some of the most successful investors in this country are investing not only outside of their cities, but also outside of their states and outside of their geographic regions.

Underneath some of the most intimidating unknowns, often lie the greatest opportunities. So don’t be afraid. When you are ready to venture out, do it, and if done properly, you will be pleased with the results.

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