I thoroughly enjoy reading about other newcomers’ successes and figured I’d share ours. I’ve read and thought about real estate investing for many years and never took action. My wife and I both work full-time and have two kids under three. We finally decided to get serious, and here’s our story….
My wife and I joined WealthBuilders in Austin, Texas around January 1999 and attended a LeGrand seminar shortly thereafter. We also purchased the Carleton Sheets No Money Down course and retired the 7-year-old copy we already had. Anyway, we became sponges, absorbing as much as we could wherever we could.
Late March, it finally dawned on us we will be learning for years and we need to make some calls. The last Sunday in March, I scanned the ads and called first on one with a header “$25k Below Market.” We were the first to call (8 am) and the first to see it. The seller was asking $126k and owed $110k.
Comps indicated a range of $135k to $145k and it was assessed at $151k (thus the $25k below). After viewing the house, we knew it needed at least $6k in repairs. I called the seller back that evening and offered $121k using a wrap to mirror his note.
He called back an hour later and said they really wanted to net $10k in cash out of the deal after closing. We had already set up our lines of credit, so I immediately agreed to increase my offer by $1k and said we would close as soon as he removed his non-paying tenants.
The following Sunday, I found an ad stating 100% financing (and not posted by a Realtor). A man answered and told me he was willing to let someone assume a note he had for a house he had sold to a lady who was in default. Comps indicated it was fairly priced. We had a signed contract by 10:30 that morning.
We went and set up an LLC and bought both properties on May 3rd. This second house we rented for $125 per month more than our payment prior to making any payments. The tenants have pets, but the $1,750 in security deposit provides some comfort.
Back to the first house: Our first offer at $141k, which would have netted us about $10k at the time (ooh, this is easy), fell through after a while, and I submitted a “help” post on the. JPiper and others scared us into not spending more money on it and just getting out.
Suddenly, the initial intent of just getting the first one out of the way and seeing if we could net $5k to $10k was replaced by fear. Were we too rash? The experienced folks told us that our deal was too skinny (with the caveat that they weren’t familiar with our market). Oh, well, it will provide a lesson and still possibly some profit.
A couple came to view the house one evening and did so in a hurry. The man (will call him D.) asked several questions which led me to believe D. was an investor. Turns out, he lives in a fourplex and owned another and was looking for a personal residence. I suggested he sell me one of his fourplexes, since I would really rather own multifamily, anyway. D. wasn’t interested.
They popped by the next evening as well, while I was showing it to someone else. They wanted a number to make an offer and still didn’t want to sell me a fourplex.
The following day I met a handyman who was there to “unconvert” the garage, and D. showed up again. I pestered him again, and this time as he was leaving, he agreed to consider “trading” a fourplex for the house. Here are the details:
Fourplex recently appraised for $139k, owes $102k, so equity of $37k, rents $2,150, payment PI only $830, other expenses $600.
House valued by me at $145k, owe $110k, so equity of $35k, I picked up the $2k equity difference and wrapped the $102k.
He was concerned about taxes, so I suggested we maintain the $6k difference in “price” and lower our prices.
I sold him the house for $121k and bought the fourplex for $115k, which should cashflow $600 to $700 per month. I now owe about $15k on the LOC, and thus have about $22k in additional equity.
I also have another house for sale currently which should easily net $12k to $15k as a flipper. Tomorrow, I meet with one man who has two duplexes and is willing to finance and another man who has a fourplex who is also willing to finance.
At this point I haven’t quite convinced myself I could maintain my current lifestyle if I were to do this full-time, but I frequently wonder what I could do if I did spend more than five hours a week (excluding education).
Man, this is a blast! Thanks for listening, and to all the other newbies out there, don’t sit on the sidelines for a decade like I did. Just do it!