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How We Bought 3.5 Rental Properties In 4 years: Part One

Have you ever listened to Bigger Pockets podcasts? They are great for learning about real estate, and I love them, but I am not a huge fan of the ones that advertise themselves as, “How Dan went from $80,000 in debt to 500 rentals in two years.” Inevitably those types of stories involve major leverage – where you’re borrowing a lot of money to get investment properties – and that just makes me nervous. So this is more of a slow-and-steady post about how to get started investing in real estate. Or how we got our start, in other words.

Our journey into rental properties started with a sign by the side of the road about four and a half years ago for a small, one-bedroom condo, one of those “We Buy/Sell Cheap Houses” deals, known in the real estate investment business as a “bandit sign.” A friend told us about a sign near their house, and we were pretty familiar with the neighborhood, but I’m not sure why we decided to act on it. Maybe it was the $30,000 price point, in a decent neighborhood? We didn’t really have a plan, and we didn’t know anything about financial independence at that point. Also, I had always assumed there was something slightly shady and untoward about the “we buy houses” signs, but we dove in headfirst and decided to call the number to take a look.

The appliances that were originally in the condo.

There were a couple red flags. For starters, it was in terrible shape – think construction in 1972 with no updates since then. It was in foreclosure and had been purchased at a crazy price in the early 2000s. The guy who showed us the place, Tony, had sat in his battered car at the end of the parking lot observing us for some time before he actually got out and sauntered over to introduce himself. He was also dressed casually in jeans and a t-shirt, without any of that real estate agent professionalism or slickness… and when I asked him if he was a real estate agent, he said he wasn’t. What was that all about? I looked up the property address and found that it actually was for sale, but the realtor I spoke to sounded alarmed that it was being shown. “It’s under contract,” she told me worriedly. “If someone is telling you otherwise, you need to make sure you’re not getting involved in a scam.”

You would think we would have backed out at that point, but we just decided to hire a lawyer to help us look into it. Tony had explained he was a wholesaler, and that they were basically going to buy the property and immediately sell it to us the same day. Being a wholesaler is not looked upon favorably by the real estate industry because wholesalers basically sell properties that never appear on the MLS by convincing people to sell at a low cost… so real estate agents and commissions are not involved, or if commissions are involved, they’re not supposed to happen with unlicensed agents. This particular condo was being foreclosed on and somehow the wholesalers had worked out a deal with the bank that owned it to buy and sell it quickly. Tony was in competition with other wholesalers to see who could sell it first, but if you don’t have cash on hand, it can be difficult to get these kinds of deals.

We had been saving our money but without any particular purpose behind our saving. We usually did this and then blew it all on something like a new car, or a pool. It just seemed at the time like that was what you were supposed to do in America. Work hard, buy more stuff. So this time we were blowing it all on a real estate venture, which was a blessing in disguise because it would eventually lead us to discovering FIRE. My husband was also excited to do all the work himself – which took almost two years (because in the interim, we were also working on having our second child) – but like I said, we didn’t really have a plan. Here’s how it looked when he finished:

But guess what? It didn’t look like that at first. The above photo is the product of two years of “sweat equity.” My input was all in the design (hello, IKEA kitchens!), and getting to do the fun stuff – including shopping at Floor & Decor for cool tiles. He did all the hard labor, minus carrying all those heavy tiles up the stairs into the condo, the one bit of physical work that I did, because he had thrown his back out FROM working on the above property. Here’s a better idea of what it looked like in the beginning:

The kitchen, before
What was eating away at that linoleum flooring?
Whatever it was, it was eating away at the plumbing, too. You can guess at the plumbing issues behind this wall…

Two years later, we finished it, and check out the bathroom at the end:

Now that’s much better.

We learned a lot from the experience of renovating it. We used nice stuff, because we didn’t want it to look like a contractor flip. We were still fairly careful with our money, but we took our time deciding how things should look. The kitchen was from IKEA, and my husband did everything except install the quartz counter tops. Renovations took a while, because he would, for example, find problems with the plumbing and then have to spend a couple weeks figuring out how to go back into the walls and redo very old plumbing. (Oddly enough, all that work was lost when there was a big plumbing leak that came from the master water supply, which the HOA was responsible for. So then real plumbers came in and tore everything out and redid it again. Oh well.).

When it came time to rent it out, we discovered a minor obstacle… the HOA had a cap on the number of units that could be rented out, and there was a multiyear waiting list. Ouch! Apparently everyone was ignoring this rule, but lesson learned. Never buy a rental property where there’s a restriction on renting it out. We managed the rental ourselves and even went before the board to ask for special dispensation to rent it out.

So, one rental under our belt, in 2017 we decided to look for others. We like condos despite the monthly HOA fees, which turn a lot of people away from investing in them, but I think a good HOA can contribute to keeping the external aspects of your investment looking nice. However, one should always ask about how high the HOA fee is, and make sure that there isn’t a big assessment planned for the near future. Also, make sure to check and see how well the grounds are cared for – that can tell you a lot about how well (or poorly) the HOA funds are being managed. Condos with blue tarps on the roofs two years after a hurricane? Moldy pools with no deck furniture? That describes our second rental (more lessons learned), but this first one is well managed and looks nice.

In a future post, I’ll share more about how we came to acquire Rentals #2, 3, and 3.5. But I’m a big fan of real estate as a vehicle to FI. As you can see, if you’re handy and enjoy making things beautiful yourself, you can do them affordably when you’re doing the labor. And if our FIRE journey is still plodding along at a turtle’s pace, that’s okay, because we’re enjoying the process along the way.

Published inFinancial IndependenceReal Estate Investing

4 Comments

  1. Ana Ana

    Nice job on the condo! I love IKEA. Real estate is such a great investment and the DIY part really appeals to me. We had three rentals we decided to sell after relocating from NC. It was just difficult to maintain out of state properties and our property management company wasn’t very good. My lesson learned.

    • misFIRE misFIRE

      Thank you! I can imagine it would be hard to manage from out of state. We manage one of ours but we have a good property management company for the other ones, and that makes all the difference. However, rental properties in Florida… hurricanes could definitely be an issue, so I’m thinking carefully about what the next investment should be…

  2. Can’t wait to read more ! RE is something I hope we do in the future and I love stories that are not like the one you describe in the beginning of the article. I don’t want to use a crazy amount of leverage.

    • misFIRE misFIRE

      Thank you! Yes, leverage makes me nervous! Especially considering worst case scenarios and being responsible for multiple mortgages. I hope you’re able to get real estate in the future as well. Bigger Pockets offers a lot of great resources for getting started.

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