11 lessons learned walking away from my dream house in Jackson Hole

TL;DR: I spent most of this past summer searching for real estate in Jackson Hole, signed a contract, then walked away. First, some context. Second, 11 lessons about real estate investing that I learned in the process.

Why buy a house now?

  1. Historic low interest rates.
  2. Strategic use of the property to launch my new business: Out Here (stayOutHere.com).
  3. Ability to qualify for a mortgage with a multi-year track record of W-2 income (before I left to start Out Here).

Residential real estate is the only asset class for which individuals can get loans up to 80% of the purchase price at ~3% rates or less. (All thanks to Fannie & Freddie, but that’s a longer post.) Leverage is a powerful investing tool — with 80% leverage, a 20% increase in the value of the property over several years translates into a 100% increase in your equity (cash invested), given the mortgage doesn’t rise absent a decision to borrow more.

Why Jackson Hole? I believe:

  1. Resort towns will continue to gain popularity as work remains more flexible than pre-2020.
  2. Income tax-free states like Wyoming will continue to grow in popularity as taxes rise (federally and in high-tax states like CA and NY) to offset growing budget deficits.
  3. Wyoming will get more popular as climate change makes southern climates less ideal.

Unfortunately for me, I’m not the only one betting on Jackson — prices are up 40–50% just this year (though less dramatic increases per square foot, as people have biased toward expansive properties further from town due to COVID social distancing).

With that context, here are 11 lessons learned from my experience (including some things I got right, and some that I missed):

#1 | Do some basic zoning research before you sign the purchase agreement.

The house I put under contract was in violation of private road setback requirements, rendering the entire house a “nonconforming structure.” Not necessarily a deal breaker, but it increased the risk that remodeling permits (or new structures like a guest house) would be rejected by the county, especially given I wasn’t locally connected at the time.

Other issues like restrictive covenants are often discovered only during post-contract diligence (found some in my title search, resulting in a collective deal breaker when added to zoning issues). But, basic zoning violations can be easier to spot in advance.

I read through the zoning rules the day I signed the contract, and remember seeing the setback and wondering if the house was in violation — should have paused there.

#2 | If it’s an investment property, get multiple estimates for rent potential.

I worked with one of the best brokers (if not the best) in Jackson Hole (DM me for a referral!), who gave me reliable estimates. Even then, I connected with two local managers to sanity check those estimates.

My target gross yield (rent / purchase price) in Jackson Hole was 6% — covering the cost of carrying the property (mortgage, taxes, etc.) with some margin for error. Your target yield will vary by market based on appreciation potential, demand stability, etc.

#3 | Find an honest, top-ranked local broker.

This is especially critical if you’re new to an area. I worked through some contacts in my network that had Jackson Hole connections until I got a great referral. Most brokers would’ve sold me a ton of junk by now, and I wouldn’t have been the wiser.

#4 | All else equal, try to stay in a price range that qualifies for an FHA loan if you’re a first time homeowner.

Getting 3.5% down mortgage dramatically magnifies potential gains if you’re confident in the long-term appreciation story and rental potential / your ability to cover costs. To double your equity or cash invested, the property only needs to increase 3.5% — of course, a 3.5% decrease wipes you out, so long-term confidence is key.

You’ll have a higher carrying cost because of mortgage insurance premiums, so factor that into your target yield.

#5 | Give yourself generous walk-away rights if possible.

One of the upsides to working with my broker was her standard contract: it included a 15-day “any or no reason” walk clause. Most contracts allow the buyer to walk only upon finding some predefined defects through diligence, and only after the seller has an opportunity to cure.

While a combination of the zoning defects and restrictive covenants (the house was explicitly marketed as covenants-free) would have been sufficient even without the “any or no reason” clause, it’s good insurance to have in place.

#6 | Don’t be afraid to low ball in your initial offer and counter aggressively.

I was able to get the sellers down to 10% below ask by starting at 20% below ask and holding relatively firm. We ultimately went through five rounds of offers / counters, which set a record for my broker this year.

#7 | Ask for a seller’s credit.

In my last counteroffer, I added a $15k credit that was accepted by the seller. Basically, you inflate purchase price (pay an extra $15k, which you can then borrow against — i.e., the bank covers 80% through the mortgage), then the seller pays up to $15k in your closing costs.

The seller breaks even, but you decrease your upfront outlay at the cost of a slightly bigger mortgage and higher interest payments.

#8 | If it’s an investment property (or you don’t have furniture from another property), ask for the property as-furnished.

I added an as-furnished clause to my last counteroffer and the seller accepted. It would have significantly reduced another upfront cost to me and alleviated a huge headache delaying me from renting out the house. This is a great move if you’re buying an investment property / second home and the seller’s furniture is decent quality — less so if you’re buying a primary home and already have furniture.

#9 | If your state permits it (Wyoming does), add a price non-disclosure provision.

When you’re looking to sell down the line, prospective buyers won’t know your cost basis as a reference point in negotiations. In this case, buyers might have assumed I paid closer to asking price (which is public on Zillow / MLS) or the industry-norm 5% discount.

This isn’t critical, but why not optimize for resale if you can?

#10 | After a few counteroffers, suggest that the seller’s broker cut their fee to close the deal.

In this case, the seller’s broker cut half their fee, enabling the seller to accept a lower price. If you can make that happen, you know you’re close to the seller’s lowest price.

Brokers want to close deals when the bid is within striking distance to the seller’s “lowest” price— half fees are better than no fees!

#11 | Consider engaging an architect during diligence if zoning rules are complex and you have improvements in mind.

One of the upside drivers for this property was building a guest house. Covenants notwithstanding, any guest house would need to comply with road setbacks, slope restrictions, ridgeline restrictions, etc. It can be tough to diligence those rules yourself (i.e. this property was on the slope of a butte complicating matters), so engaging a local architect for a quick on-site review is often worth the cost.

Hope this was helpful! Any key tips I missed?

If you’re interested in exploring Jackson Hole, take a look at Out Here. We offer furnished, work-from-home rentals in incredible locations, currently Jackson Hole. Guarantee you’ll have a once-in-a-lifetime experience.