Why everybody is still going crazy over real estate, and the reason I chose this for my investments

     Photo by Kvnga on Unsplash
 

Growing up through my very early 20s in the real world and in the military everybody was always talking about real estate. The owner of the company I worked for at the time started out in rental properties and used that money to buy his first business. Many higher-ups in the military spouted constantly about their 8-10 properties they own/manage. 

I kept hearing about it everywhere I went and I've always wanted to do something with my life. I tried multiple small businesses out of my second-story apartment that eventually failed due to my lack of enthusiasm for the idea. I'd write it all up, make fliers, and post them all over my tiny town in Missouri. After a week or two of no responses or bogus spam, I'd give up and slowly slither back into my hole. I eventually developed the idea that business ownership just wasn't for me. That was my mindset at the time. I've since come to realize, through various books and mentors, that businesses aren't built overnight, and ideas aren't realized in an instance. They take nurturing, planning, and more importantly other people, but that's a whole separate conversation for another day.


Why Homeownership?

At the time, nothing was going right. I needed something that would basically just work and that I could put money into and realize that over time. At that time, at the age of 21, I wasn't worried about long term investments or building a business. Homeownership started as something I could do to build myself as a person and in the back of my mind, maybe I would move out of my starter home in a couple years and try to rent it out. I could take the time to fix up the area, get the grass to grow, plant some flowers, and maybe paint the walls. 

I had a very basic idea of what it was like to be a homeowner, to say the least. To further that point in the two years that place was my primary residence I never owned a lawnmower! I was building credit through a lawnmower payment for my step-dad so occasionally he would stop by and mow it or a neighborhood kid would knock on the door and mow it for $20. I certainly had no business owning a home, but that was part of the GROWTH to become the person I wanted to be. On top of that, I had this physical asset that I could pour my time and money into to improve a skillset or add value to my net worth. 

Long story short, everybody should at least attempt owning a home for a few years out of their life. "Now I'm stuck to this one piece of land for the rest of my existence!!". No, you're not, that's an excuse. I lived in that first house for just under 2 years before renting it out and moving across the country. I probably could have sold it and not taken a loss due to the steady appreciation and small amount of loan paydown. If you don't like it, rent it out and move back into an apartment. Boom you have a performing asset paying part of your rent or going into a maintenance account to cover repairs for the next 30 years and take a lump sum from selling the place at that time. 


Homeowner to Landlord

How does that transition from liability to asset happen? Where does the mindset change come from? Honestly, it's a huge leap. I wasn't even planning on renting that place when I did. It was mostly a domino effect. I was leaving my deployment overseas with a little cash in my pocket ready to purchase my first investment. I spent months watching videos, setting up accounts, and contacting Property Managers around Missouri. Luckily enough I had all this stuff in place when I got the call that I was wanted for an out-of-state position. 

From that point on my house turned from a loving home to a numbers game on a piece of paper. Would this house make money? Do I need to make a significant principal payment to drop my mortgage payment so I didn't slowly bleed money for the next 5 years?? This is when I learned about the process called "mortgage recasting" offered by Chase. You make a large capital investment and your payment is refigured to the new loan amount, with a $5k minimum if I remember correctly. 

I called to verify with Chase the property could be rented under their guidelines and they wouldn't call the loan, which was fine because I owned the home more than the minimum 1-year term. From there I got the property setup with the PM and they had the house listed 1 week before we moved out and tenants in place another week after that. It was a crazy time, and I certainly didn't plan for all of the expenses that could come up. I ended up being responsible for a total of 3 weeks' worth of the mortgage during that time, along with utilities and other various expenses along with the first month on our new (temporary) apartment. All in all, I was down around $2,500. 

Alongside that, I also thought it would be a good idea to purchase my first actual investment property.....it wasn't. Having said that, if I didn't purchase that property I wouldn't be anywhere near where I'm at now (around $133k Net Worth) so I'm extremely grateful. I ended up finalizing the loan papers on our 15-hour drive down to South Carolina, and our first purchase in the apartment was a proper printer to get the 60 pages of closing docs I had to sign and overnight back. Very stressful and tedious process.

Why do you invest if it's so stressful?

This is a question I see a lot as a real estate investor. A lot of people prefer stocks due to their safe nature and guaranteed return. Real estate is generally high risk, but usually, even on the worst day, the risk is worth the reward. I take certain precautions to eliminate risk. I always invest through brokers who have been where I'm at and are currently in a position I'd like to get to, and they know what to look for in a good property. My money is precious. Not in the sense that I need it to bring me the most possible money back, but more in the sense that I couldn't really afford to lose it. 

I currently invest in what would probably be referred to as "turn-key" investments. Move-in ready properties that appeal to renters. This keeps my money relatively safe for the moment and I can use future gains to make riskier moves, but even on these safe low-risk investments, the returns are astronomical. To show you what I mean, let's run through some quick and easy numbers. Straight to the point, and maybe a little dry, but it's a basic roadmap of my future. 

Let's say we only purchase homes that cost: $75,000.
A down payment on a home like this at 20%: $15,000.
Cashflow from a property like this in my area is around: $200 per Month.

We had our initial $15k investment to get our first property. We're currently earning that $200 per month in our business, and we'd like to acquire another property. We need another $15k. Simple math. $15k / $200 = 75 months to our next property or 6.25 years

That's a long time. At that point though you now maintain $150k worth of assets! That's something. At that point, you're working with $400 per month in your business and around $1,500 per month in revenue which is exciting. Let's get another property going. $15k / $400 = 38 months or 3 years and 2 months. Now you can start to see where you're headed. Your wealth begins moving at exponential rates. Imagine saving a little extra and starting with 2 properties instead of one or using a nice stimulus check to help you skip a few months in the beginning. With the projection above, after 30 years you could have close to 1.6M in assets along with close to $4k/m in cash flow. The potential is unmatched!

In my situation, I had that first property along with the second one acquired using the small amount of money I was able to hold onto after moving across the country. On top of that, I was able to make a couple smart moves, a quick refinance, and a little built-in equity. Now I've got 4 properties in my first 2 years of investing. With a couple easy moves, I was able to skip the first 10 years of hardship in investing! These aren't amazing numbers. You see these stories everywhere. Let's run these numbers with real cash flow. 

Still working with those same properties at a $15k down payment. $15k / $800 = 19 months or 1 year and 7 months. In my certain situation without any further investing I could purchase a new property at least every 2 years. After this next purchase, it just keeps getting more exciting. $15k / $1,000 = 15 months or 1 year and 3 months. $15k / $1,200 = 12.5 months. $15k / $1,400 = 10.7 months. 7 years total invested at this point. What could you do with an extra $1,400 per month every month for the rest of your life, or the ability to add a new property and $200 worth of monthly income each year? 

Why haven't you started investing yet?


This is the power of investing in real estate. Virtually unlimited returns. The biggest thing it takes is that initial leap. Of course, you can't keep something like this up forever. According to my projects around age 50 your buying over 40 houses per year, which would just make me tired. Eventually, you'll need to begin prioritizing paying down debt or moving your net worth into something more stable. 

You'll start rolling these smaller properties into larger properties very similar to the game Monopoly. This allows for less administrative overhead from managing 50-100 properties, but those are problems once you're on the other side of the investment game and not something we currently need to concern ourselves with. Stop listening to your financial advisor who's never done a smart investment in their life and put that nest egg into something that has real earning potential. A 401k is good for people who want to retire at 65, but that's not what people like us are looking for. Good luck, and Happy Spending!

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