Deal #1 - Personal residence turned lease/option

My goal as a real estate investor is to gain financial freedom through a rental portfolio. At 35 years old, I want to retire from having to work on a daily basis within 10 years. If I can retire sooner, then I'll be that much happier! I am certainly open to flips, wholesale deals, long-term rentals, vacation rentals, single family homes, apartment complexes, and anything else that can bring in money each month to replace my normal job. This blog will show my struggles and successes as well as, hopefully, help me to answer some of my own questions along the way! First, I'll give some information on my first deal.

The first deal I've done is a single family home in rural Minnesota. It looks like an old farm house with an attached single car garage. There are 3 acres with a small 12x16 building that I personally used as a woodworking shop for about one year as well as a pole shed that is 30x50 with a dirt floor and no insulation. My wife and I purchased this house as our personal residence shortly after we got married and found out we were to have our first child. We were excited to start our family and decided to move out of the house we were living in (my wife's parent's house) and purchase our own place. We planned to make this our home and did a few updates such as a new bath tub with tile surround, new kitchen/dining wood floors, new cabinets, new carpet throughout the whole house, and, of course, new paint.

The house had 1 bedroom on the main level across from the bathroom. Another bedroom upstairs was a little odd with the bathroom being build in one corner of the room and no closet; the laundry was also planned to be in this room, so really it was a random room with a bathroom and laundry that was planned to be converted back to a legal bedroom. There was another bedroom upstairs that had a second room attached to it via another doorway; the room was weird simply because there was one main door to the two rooms and you had to go through one room to get to the second. We decided to knock down the wall between the two rooms and make this one large master bedroom.

Fast forward to the date of my daughter's birth and you'll find a mother that was depressed from having morning sickness for six months and is now looking at dealing with a baby that has colic for another six months! Throughout this difficult time we decided to move back in with my wife's parents to help with our daughter because the only way my daughter would stay quiet was if we bounced on an exercise ball. Our day went like this: wife is already awake when I get up at 5am to go to work, she bounces on the ball all day until I get home from work at about 4pm, she says "I'm so glad you're home, I need to go to the bathroom so bad!" so I take over for the next 6-8 hours bouncing on the exercise ball with my daughter and trying to get her to be happy rocking in a chair or doing anything else that allows us to rest some. Welcome to parenthood!

Back to the house, I kept working on the house with the plan to eventually move back in. I get the main floor looking really nice, add a large covered deck, finish the master bedroom, and purchase a new furnace/central A/C then the ADD kicks in and I hardly do anything on it for a few months.  A guy comes up to take a look at something I have for sale posted on Craigslist and as we get to talking I mention he can buy the house too.  He says he is in the market and loves the house so I do a bunch of research and come up with a lease/option plan.  Found all the necessary paperwork all ready for me from the state of MN, have them sign it, and now I have a house with a $400 PITI payment and a $700/month lease payment coming in for $300 in cashflow.  The numbers are little more difficult than this, but you get the idea.  

I fell into this lease/option plan when I had originally planned on using this house as a stepping stone to the next house.  We purchased it for $36,000 as a foreclosure in terrible condition.  We put in about $5,000 and hundreds of personal labor hours fixing up the house.  We have it in the lease/option at $70,000 and 5% interest over 17 years.  I love the cash coming in and if they default on the loan I get a house back that is now worth about $85,000 with the good market we are currently in. All of the cash flow goes straight into a business account that gets saved to go towards the next investment.