How I Got Started in Real Estate (and a good primer on real estate jargon)

Before I bought my first investment property in May of 2006, I was an engineer fresh out of college working for Florida Power and Light in 1990. ?You learned your job via shadowing which is when experienced engineers help the new ones until they were independent. ????It was a great starting job where everyone told me I just had to work there 40+ years and enjoy automatic pay increases and a comfortable pension. ??It was a job for life but I noticed a ‘good enough’ mindset with my fellow employees. ?Nobody was growing and often times the most senior engineer was promoted to be the next supervisor rather than the most worthy. ??Somehow, I didn’t see myself as a lifer. ? ??

One day I noticed one of our older engineers looking downcast. ??When I asked, he said he could no longer afford to retire when he wanted to in 18 to 24 months. ??He had spent his life following the experts, contributing the maximum amount to his 401k and enjoying the 50% company matching. ????He had given his life to FPL and expected to live off his pension. ??Note this was just before the famous 4% distribution research was known but similar guidance was offered. ???

His issue was that he was fully invested in stocks and bonds and had taken a big equity position. ??The market had taken enough of a downtown that his financial advisor told him he needed to keep working. ?He had the additional financial burden of a handicapped son that was not expected to ever be able to live independently. ???I didn’t know how but I purposed to never be dependent on factors that I could not control for my retirement. ??

I got married and had 3.2 kids (we had two golden retrievers). ???I knew I was in the rat race and didn’t know how to get out. ??I was always one step behind being able to invest in anything and there was always an urgent list of things that required financial attention. ??I knew I needed to do something different but had no idea what, let alone how. ??I got a life insurance license to supplement income and started reading real estate investment books including Rich Dad, Poor Dad. ???While I was busy trying to find a break, and while my wife was 8 months pregnant with our third child, ?I was laid off. ?Real estate would have to wait. ?I knew I had to scramble and I doubled-down on the idea that I needed to create multiple streams of income when I was back on my feet. ????

The housing bubble of 2003 to 2005 inflated home prices in South Florida and I had equity in my primary residence. ??I got a HELOC (home equity line of credit) and was ready. ????I finally had the drive and the money so I asked my dad about investing in real estate. ???I liked the idea of the property cash-flowing from day 1. ??This is what we now call the BRRRR method (Buy, renovate, rent, refinance and repeat) but at the time I had no idea it had a name. ?In 2006, South Florida single family homes didn’t cash flow meaning that I was going to have to be prepared to lose money every month for the hoped for appreciation that should come later. ??The experts were warning of declining real estate prices since the bubble had clearly broken. ??It seemed risky for me as a beginner to invest in South Florida so my dad suggested his hometown of Nashville, Georgia. ??The blue-collar neighborhoods were affordable with good returns. ??I now understand this to be class C single family housing. ?????????

I started googling houses on realtor.com looking for a potential investment property. ??I found that the nearby town of Adel, Georgia had houses for $40-50k that rented for $400 to $500 per month. ?Somewhere, I had learned the 1% rule and these houses fit that criteria without any negotiation. ???This ?guideline and not a rule means that investment houses should pay 1% or more of their purchase price per month in rent. ????I thought I might be on to something. ???I started dreaming that one day I would have 5-10 rental house fully paid for and I’d be set for a comfortable retirement with my already in place 401k. ??I still needed to find the money as my line of credit wasn’t enough. ??

I thought I could get a traditional 80% loan to value (LTV) for my investment house like I did for my primary residence. ???I started with my bank, Bank of America, and tried a few other national banks. ?I was not successful finding banks to loan money on investment properties because they would not consider the income from the rent. ??My salary had to justify the loan with what is called the primary ratio (mortgage payment divided by gross salary typically is limited to 28%). ??I was not defeated but instead assumed people paid cash for investment properties. ???I knew I needed a partner to pay cash so I spoke to my brother-in-law who I knew was interested in real estate. ?We agreed to be 50/50 partners and that I’d make the trip to find a house. ??I planned a trip to drive 400 miles north from Ft Lauderdale with my dad and my partner expecting me to check before we made an offer. ??

I found two houses I really liked and made offers on each. ??I could not afford to buy both houses and, in fact, was concerned about affording the cheaper one. ??The cheaper house was listed at $50,000 and my partner and I each felt we could comfortably afford $20,000. ??My dad liked the deal, my partner liked the deal and I was excited to get out of the rat race. ??♂???I offered something like $35,000. ???They countered 3 weeks later at $40,000 and then we had a contract. ??

We were now in, what I would latter learn, what is called the due diligence phase. The house was a foreclosure and we had to deal with an asset management company that had no first-hand experience with the house. ?I was working with a realtor who was part time and not very experienced but the company where she worked was the chosen agent for the national asset management company. ??It was not a professional real estate experience. ??We ordered a home inspection and the home inspector got a mild shock when turning on the outside hose. ?We thought this was serious and considered backing out. ?But I learned a valuable lesson by asking myself what is this red flag worth to me. ?????The estimate to repair the do-it-yourself electric work in the house was $1000 as it was isolated to the poor ground on a window unit AC outlet. ?I went back to the seller and told them of the electrical work and lowered my price by $2,000. ??We closed at $38,000. ?I remember thinking that was too easy and next time I’ll offer less if there is a problem. ?Read this as, red flags are opportunities to lower the price if you have a means to resolve them. ???I like to say to sellers, that I get paid to resolve your headaches. ??That has made me good money over the years. ????

I’m quoting numbers as best I can remember but honestly don’t know the exact numbers. ??At this point, it doesn’t matter but the numbers help tell the story of how I got started. ?I bought my brother-in-law out of his half years ago and we parted company on great terms. ??Many years later, he was one of my first multifamily investors. ?That house is now renting for $825/month and I do not expect to ever sell it. ??Instead, I plan for my real estate to pay for a comfortable retirement and make my kids lives better when my wife and I pass. ??I have refinanced that house as part of a portfolio loan (that’s a fancy way of saying you have one loan on multiple properties). ????I structured the loans as a single consolidated loan of all my single family plus a line of credit to use for my then future plans to get into multi-family housing (read apartments). ?

Looking back at my first and very unprofessional real estate experience, I was actually very encouraged. ??I realized that if average people could make money in real estate then I could too. ??I’ve now repeated that single family process over 50 times and have acquired an interest in over 1000 multi-family units (called doors). ???What I am most excited about right now is investing in multi-family as they have great passive returns. ??I feel the need to define passive as I feel many people on social media do not use it correctly. ??To me, passive means spending less than an hour per month to maximize your investment. ??Anything that urgently interrupts your day job is also not passive. ??A passive investment is what you are probably used to in the stock market. ??You spend time getting educated, researching and evaluating but the actual ownership doesn’t require anything of you. ??Owning your own single family investment house is not passive because you have to spend your time to manage it. ??In the early days, I made $250/month and regularly had to work harder for it than my day job. ??The months where I drove 400 miles each way and stayed in a hotel to have a first-hand account of my property, I lost money. ??????Owning ten doors with a property manager handling tenants is still not always passive because you have to manage those that are working for you. ??Passive income is mailbox money which is a refence to a time when you received a check in the mail and you just had to cash it. ??After many years of owning single family rentals and having managed property myself in the early years, I can now manage them in less than an hour of month. ?But this is not a quick nor easy plateau to get too for a beginner. ?This assumes there are no other big changes going on. ??Making changes to maximize the net income is called the asset strategy. ??This involves either increasing the revenue or decreasing the expenses. ????Both will increase the net income. ??There can be significant net income from single family homes and I am a big advocate for building generational wealth this way. ??You just need to make an informed decision about the best use of your time and money. ???

I’m not a coach and I don’t have a program to sell. ??I realize that I can find real estate deals, analyze real estate deals and fund real estate deals all on my own. ??I’ve learned how to make returns that are better than the stock market. ??If I continue to pay down the debt of my investment properties which are cash-flowing, I’ll have a comfortable retirement somewhere in the next few years. ??My goal is to grow exponentially bigger, and I’d like to own my own multi-family property, possibly one that I develop myself. ????To do that I am looking for other like-minded real estate investors. ??If that’s you, register on my website so I have your email address. ?I’ll send you regular updates on what I am doing and you let me know when you see something you like. ????

Thanks for reading to the bottom. ??DM if you are interested in working with me. ??

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