“The person
who gets the farthest is generally the one who is willing to do and dare. The
sure-thing boat never gets far from shore.” Dale Carnegie
I have been
investing actively for the last 15 years. The success stories I am going to share are my experiences, and those of
the people my wife and I know personally. We are average people, as are the other investors we know. Most of us make an average income, yet have
been able to accumulate a tremendous amount of wealth through real estate
investing.
My husband and I
started investing gradually. We first
bought a home, which we turned into a rental property a year later. Next, we “flipped” a house. A year after buying our first home, we moved
to California; within two years, we started our investment portfolio by buying
a triplex that we owner-occupied. After
the first California property, the rest is history. We used the equity in the first property to
buy our second, third and fourth investment properties, never touching our
savings in the bank.
I can’t credit
it all to my real estate genius – I’ve had some help from the phenomenal real
estate market over the last few years, and appreciation has skyrocketed;
however, as an investor, you will be able to make money on real estate whether
the market is good or bad. I was
investing before the market went crazy, and even now that it has slowed I’m
still investing. I have learned to make
money no matter what the market conditions.
As I mentioned,
our first investment was not an income property, but our home that we later
turned into a rental. It was little
2-bedroom near the University of Arizona, in Tucson. When we bought it for $55,900 we had no
intention of renting it; we were just thrilled to own a home of our own.
Shortly after
moving in, we had the opportunity to buy one of our neighbor’s homes. They needed to move quickly for a job
transfer, so they sold the home to us on an AITD (all-inclusive trust
deed). This means they kept the loan in
their name, but we owned the property. We made the payments to them, and they in turn paid the lender. You see this often in a soft real estate
market. Our intention was to “flip” the
house, which needed improvements. It was
hard work, but a great learning experience - plus, we were young (early 20’s)
so we did most of the work ourselves – paint, carpet and clean-up, and had a
handy man come in to fix a few difficult items. When all was said and done, our profit was about $6,000. This sounds ridiculous in today’s California
real estate market, but it was a good profit; the house was only $60,000 and we
put about $3,500 into the house including labor, so it was a great first
effort. If you only make $5-$10K on each
investment but did several a year, how many would you have to do to match your
current income?
About a year
after buying our first home, we became landlords for the first time. My father was in the Army, and Tucson
happened to be our family’s last stop before Dad retired. I finished high
school, attended the University of Arizona, and got a job in Tucson right out
of college. However, I am a California
native and really wanted to get back to the great Southern California climate,
as well as the rest of my family. My
wife and I packed everything up (including our two dogs) and moved to the South
Bay area of Los Angeles without any jobs; we were only 24 and 25 years old at
the time, and at that age it’s easy to make that kind of move. But we kept our little house as a rental,
just as a backup.
Our first year
in California was tough; we rented a little condo at the beach, and took a
string of awful jobs. We were committed
to making a success in California. After
the first year, I started working at the California Association of
REALTORS®. Courtney, my wife, did a
variety of different things, including working for the RE/MAX Corporate office
as well as consulting for Homes and Land Magazine, Realtor.com and Realty World
Broker Network. She initially stayed out
of real estate sales because it was a depressed real estate market, and real
estate is a business that takes time and money to build. In the end she went back to real estate
sales, which worked out extremely well for our long-term investment plans.
I mentioned
that we have had well-planned as well as accidental successes. When Courtney went back into real estate
sales we needed a plan, since we would have to depend only on my income while
she built her real estate business. After our first year in California, we sold our Tucson rental and bought
a townhouse. It cost about $2,000 a month for the payment and taxes, and we were
already living paycheck to paycheck; we decided living in an income property
would be the best way to go. We began
looking for a place that was in a good area and had some yard space for our
dogs. We were not as concerned about the
condition, because we prefer to buy fixer properties.
We found a
great triplex in Old Torrance, which at the time was starting to
redevelop. The 3-unit building was
comprised of a 2-bedroom unit and two 1-bedroom units that all needed lots of
work. We were one of three people making
an offer. The seller arranged to have
all three buyers do a walk-through at the same time. We ended up getting the place, and at the
time we were very excited that the seller chose our offer; but looking back, I
think we were the only ones who still wanted it after seeing its condition. The property worked out very well for
us. We had a few snags when buying it,
and we had to do a lot of compromising on our standard of living; but in the
end, it allowed us to start building our investment portfolio.
When we first
took possession of the property, we had to evict one of the units so we would
have a place to live. Unfortunately, the
unit we decided to take was the 2-bedroom; the tenants had just moved in two
months prior, their best friends already lived in the building, and it was two
weeks before Christmas. Although we felt
bad for them, we still needed to take the unit or we would have no place to
live. Since it was over the holidays, we
gave them 60 days’ notice instead of the required (at the time) 30 days’
notice. We painted and carpeted, but the
kitchen and bath were still circa 1940’s; we lived with it, since cash was
tight.
It is very
common to lose at least one tenant when you purchase a property. The first month we moved in, one of the
tenants gave notice and decided to use his deposit as his last month’s
rent. He was not allowed to do this, but
what could we do? When we got his unit
back, the place was a disaster; but we cleaned it up, painted it ourselves and
had it carpeted. At first we struggled,
but our overall monthly cost was much less than it had been with the
townhouse. Within the first four months,
we had made a few improvements, re-rented the vacated unit and raised rent on
the other unit. It cost us about $700 a
month to live there, including paying for the mortgage, taxes, insurance,
trash, water and gardener for the entire building. This was great compared to the almost $2,000
a month we had been paying at our townhouse. Over time, we eventfully remodeled all the units - the building now
grosses over $3,700 per month. And, while we living there we got to a point
where we earned money each month over and above paying all expenses.
About two years
after buying that first building, we used some of the equity to buy a duplex
also in Old
Torrance. This time, we bought two
freestanding homes on one lot so it no longer felt like apartment living; we
had our own front and back yard. This
property also needed a lot of work, but we were up for it; we knew the area and
loved the property. The back house had
been remodeled for the previous owner’s daughter, so it had more upgrades than
most rentals. We had it rented and the
tenant was settled before we moved into our house.
Of course, the
house we chose to occupy needed a complete overhaul - from a new bathroom and
kitchen to a total rewiring of the electrical system, new floors and
plumbing. We spent more on the upgrades
than we would have for a rental, but since we intended to live there and planned
to stay in the house for a while, we didn’t care. Once we were in the house,
our tenant’s rent paid a majority of our mortgage and it cost us less than $500
per month to live there. Plus, keep in
mind that we had a positive cash flow on the first triplex. We were slowly building our monthly income as
well as our total net worth.
Only two months
after moving into that second property, we learned we were expecting our first
child. So, almost a year to the day
after buying the duplex
, we purchased another two homes on one lot in the
neighborhood, so my parents could help us with the baby. Again, we took the equity from one of the
rental properties for the down payment; they lived in one unit and the rent on
the other side paid a majority of the mortgage. At the time, it was costing us about $1,600 per month, a little more
expensive than daycare. Then we lucked
out when interest rates dropped, so we refinanced all of our properties to a
lower payment as well as increased all of our tenants’ rents. Eventually it only cost us about $500 per
month to house my parents, which is far less expensive than daycare. More importantly, I was able to help out my
family and our kids are very close to their grandparents.
Through all of
this activity, I was clawing my way to the top of the corporate ladder; but
soon after my first son was born, I became really discouraged with my job. This was when I decided to make the move to
being a self-employed, investor. Once I
made the change, things started to happen very quickly. I purchased a mobile home park with over 50 units
in Tucson to replace my income. Soon
after, I bought another mobile home park and a rental house, both in
Tucson. I believe I was able to move
forward so quickly because I was no longer distracted by my job; instead, I was
focused completely on attaining my investment goals.
Three years
later we had another baby, so we decided we finally had to “bite the bullet”
and buy a single-family house of our own after living in our rental properties
for almost seven years. As the kids got
bigger, we agreed my parents needed a larger house. Again, we used the equity from our other
properties to buy them a single-family home, which gave them much more living
space - and our children have a wonderful place to stay and play.
Al and Carol
(my in-laws) have been investors since 1985. After more than 25 years in a “secure” job, Al realized the only people
making any real money and getting ahead were the owners of his company. He decided he wanted something more for
himself and his family, so Al and Carol sold their home in Massachusetts, Al gave up a “steady” job with “benefits,” and they bought a mobile home
park in Tucson.
They had no
business experience, nor did they posses any property management skills: Al
worked in the HVAC field, and Carol was a homemaker. They took the leap and left the comfort of
their “safe” life, moving across the country to a city they had never lived in
before. It literally changed their
lives, for the positive. Twenty-something years later, they still own income property and carry
notes on several other properties. The
make over $120,000 a year on passive income, plus retirement money - and their
house is paid for!
Laura is a good
friend of ours and grew up around investment property; her parents were
investors. Yet, she was reluctant to
start investing in anything other than her own home. When she divorced a few years ago she decided
to buy a condo, in spite of our best efforts to get her to buy an investment
property. She told us she was afraid of
being a landlord as a single woman. She
didn’t know how she would get things fixed if something broke, and she said she
didn’t want the “headaches” associated with property management while going
through her divorce. She bought a
2-bedroom condominium in Long Beach, CA, which cost her almost $2,000 per month. Almost immediately, she regretted her
decision; within three months, she decided to sell her condo.
She got her
first income property, a triplex, which was going to live in. Once she closed her escrow, she gave notice
to the unit she intended to occupy and moved in. She thought she’d have smooth sailing; but
almost immediately, the other two units gave notice. She was faced with having a larger mortgage
payment than she had with her condo and no rent to offset it. Both units needing some remodeling; plus, she
had to refund her vacating tenants their deposits. Initially she was frantic, but we convinced her
it was really a positive; now, she could make the improvements and raised the
rent significantly higher than if the tenants had stayed.
She made some
cosmetic improvements to the properties and raised the rent; now she was
earning $500 per month over and above the cost of her mortgage and other
expenses. To help defer her out-of-pocket
expenses she purchased all the supplies on her Home Depot credit card. Then she asked the carpet installer, handyman
and plumber to give her 30 days to pay for the labor – they agreed. Two years later she moved out, used the
equity to purchase a home within walking distance to the beach, and used some
of the equity to buy an additional rental property.
Did I forget to
mention she and her new husband took a year off to travel the world? Plus, since she now rents the entire
property, makes close to $2,000 per month over and above her existing mortgage,
and is experiencing a tremendous tax savings. The first year she and her husband filed taxes together, he thought the
accountant either made a mistake or was breaking the law; he could not believe
the tax savings they enjoyed as income property owners. The best part of the story is that she is
getting ready to have her first baby, and between her $2,000-per-month cash
flow and her husband’s income, they have a very comfortable life that will allow
her to live her dream and be a stay-at-home wife and mother.
Louie has a
different approach to investing. He buys
million-dollar properties, has them professionally decorated, lives in them for
a year or two, and then sells them for a large profit (usually $100K -
$200K). Not bad - extra money, every
year or two.
Joey lives in
California but invests in his home state of Florida, where prices are
lower. He has bought several properties
over the last few years to fix and flip, and he has kept a few as rentals.
Dan and his
father purchased a duplex
from my wife a
few years ago. He lived in one side for
two years, and then traded up to a much larger, 4-unit building in the same
area.
Vince’s son
attends school out of state, so he purchased a duplex
for his son to
live in. He collects rent from the son’s
roommates, plus rent from the other unit. Once his son graduates, he will sell the property for a profit; plus,
for the years his son was always at school, he receives income and gained
several taxes benefits.
Scott and his
wife bought their first 1-bedroom condo a few years ago, and wanted more
units. They considered buying a larger
place and renting their condo, but the rents they could charge would not cover
the mortgage. They just purchased a
duplex
in a great
area. They now have a spacious 2-bedroom
house with a small yard, plus a 1-bedroom house to offset their mortgage. They
are well on their way to starting their investment portfolio.
These are just
a few stories of people we personally know. Their stories are not unique. If
you’re ready to start investing, this could be you.
|
