How I Started Investing In Real Estate
In September 2000 i caught the flu and while I was probably well enough to go to work, I decided to take a week off and relax. I spent a whole week sitting in Barnes and Nobles reading all sorts of business and investing books.
That week I read the Rich Dad Poor Dad
A month after I got married, I realized that if I was ever to buy any real estate in the San Diego market I needed to get in quickly, before it escalated beyond my reach. I got an FHA loan for where I only had to put down 3%. along with some closing costs I needed 6k and i needed 4k to pay off some off one of the credit cards. I borrowed the 6k from a close friend and my wife’s aunt. Luckily I was able to pay them off within 4 months from my tax refund.
In October 2001 I lost my job directly due to the attacks on the World Trade Center. I was unemployed for 4 months and it sucked! I vowed I’d start working on becoming financially free. In Feb 2002 I finally found a job and revisited the Rich Dad books. Kiyosaki makes a great story but he’s low on ideas for actual implementation. I then spent the next several months reading probably a hundred books on investing. It was at this time I learnt about real estate investing and the power of leverage. I joined the local real estate investment club and I’ve been going somewhat regularly ever since. In August 2002, I refinanced my condo and pulled out $20k to pay off my remaining car loan and credit card debt. It cost me around $3.5k to refinance but I’ve been debt free ever since!
I spent the next several months looking at deals. I found a few stellar deals and not having enough money to pull it off myself, I tried to rope in my friends. But nothing worked out. I just didn’t have the power to convince them. Long story short, I decided to go my own way. I bought another condo in the same complex where I lived in July 2003. it was a full $100k more than the first one I bought 2 years earlier, but i was pretty sure that it would still go up another $55k in the next 12 months. I bought it 100% financed with 4.5k in closing costs. I rented it out and I was $100 negative per month. actually only $50, if you consider i rented it out 2 weeks before i had a payment due.
Six months later i bought a small rental house in Victorville, California. I rented it out under the section 8 program. The government paid $629 of the rent. the tenant was supposed to pay another $389 but he only paid every 2nd or 3rd month. My payments were only $550 so I was still cashflowing.
In July 2004 I sold my original condo for twice what i originally paid for it and moved into the rental close by. Now i had so much money, I didnt know what to do. I definitely didnt want to buy anything else in CA. So I did a lot of research about real estate market cycles and correlations between CA prices and prices in other states. I found there was a correlation but thats enough data for another post. Anyway I decided that I was going to invest in Salt Lake City, Utah. Based on my study of historical price trends, I predicted that SLC was going to experience a boom in the housing prices and they would jump atleast 50% over the next 4 years. Incidentally this optimism wasn’t shared by anyone else, including the agents I worked with in Utah!. It’s always good to be the first person in an a good investment.
In November I both 2 houses for around $215k including closing costs. I decided to do Lease-Options so i could get better cashflow. Over the next several months I booked several more, some of which have already closed. Seeing the way the markets jumped this year, I’ve decided against doing anymore lease-options. One of the tenants is currently exercising his option after only 4 months!!!
In July 2005 I sold the rental condo that I moved into, for $70k over what i paid for it after living in it for 12 months. I’m actually renting it back from the buyer and she’s actually negative several hundred dollars every month. thank god i’m not in the business of subsidizing my tenants!
In august 2005 i also sold the house in Victoville netting around 75K in profit. its part of a 1031 exchange which i’m using to buy 2 more homes in Salt Lake City.
In July I booked 5 homes in Boise, Idaho in partnership with my friends. I get 50% of the profit but the downpayment is coming out of my Corporate pension plan while my friends are using their credit for the rest. They’ve gone up 50-60k since then and they still haven’t been built out. We plan to flip at closing. lets see how that works out.
So thats the story so far. send me your comments about how you guys started.
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January 14th, 2006 at 5:28 pm
I was up in Boise the past 2 weeks looking for homes as investments, no way would I buy there now. my brother bought 3 homes in late aug. 05, meridian area, for $137,500 to 140,000 newer within 7 yrs old, 1,200 sq as smallest. the same size homes in same neighborhood are now going at 185,000 to 193,000. all the agents up there are saying what a great deal and you can rent out for 950- 1,100 a month. Well at my P& I, ins & taxes, that may be fine, But and the real word is But, checking many, many homes in same area for rent, rents are down to 750- 850 month and taking 3 months to rent. This i do not call any deals, i am now looking at Palmdale to buy in as i can get homes there for 185,000 -200,000, just as nice as boise, BUT can rent them out for $1,600 to $1,900 a month, now that I call a investment. I have never seen so many rental signs out as i have these past 2 weeks up there. Seems like every 4th home on a street has a for rent sign out front. What a sorry mess you agents have done to that city and area. Regards, Dan Winters, investor from Calif.
April 15th, 2006 at 2:00 pm
Dear Blogger and Anonymous:
That’s so interesting! Thanks for sharing. I think that 1998-2005 have been really unusual years in RE, the likes of which we won’t see in another 12-15 years at a minimum, in fact, it may be decades before we witness another craze like this, with prices going up for more than 20% for several years in a row. All those rent signs in (traditionally undesirable) desert communities are a clear sign that a lot of people got in the party a bit late. So, lots of “investors” will be holding mortgages worth a lot more than their properties, in a context of declining rent incomes. It may be worth considering buying in those places after the dirt settles, meaning after prices drop.
March 28th, 2007 at 3:23 am
That’s an inspiring story! I think that’s what you call the american dream!