Posted 3 months ago

One Year in the Life of a New Investor

I have read many articles that talk about the success people have found in real estate investing (REI). I’ve decided to document my experiences thus far for my own reflection and hopefully for the benefit of others. I suspect I’m not the only who hasn’t found immediate success in investing. I hope to encourage others as well as reinforce my own resolve to continue on.

In July of 2012, aside from my mortgage, I committed to pay off all debt within three years. Four and a half years later, I made the final payment on my student loans and personal debt was eliminated. Money now began to show up in my savings account. I was less than impressed with the interest it was earning and set out to find a better investment strategy.

In August of 2017, after trying other investments and still not thinking I’d found the best option, I was introduced to REI. I attended my first REI seminar and was intrigued by the concepts, but not thrilled with the “guru” fees they wanted. I began reading books, attending local Real Estate Investing Association (REIA) meetings, and talking with friends I knew that had rental properties.

I soon had a goal to buy my first rental property by the end of 2017. From my self education thus far, I decided to begin out of state for the appealing lower home prices. I would find a good property manager to save myself time while I worked my full time job. Along those same lines, a turnkey provider seemed a good idea as they should be an expert at finding deals, knowing good contractors to do repairs, and recommending the right property manager for the area.

Property #1

In December of 2017, I closed on a single family home in the Midwest purchased through a turnkey provider that would do the rehab and place renters. To purchase the home, I took out a $50k loan against my 401k. I expected the rehab to be completed in three months, but had six months reserves to make 401k repayments just in case. Unfortunately, the turnkey provider did not hold up their end of the bargain and did not complete the rehab to get the property rent ready. I ended up being the one to find contractors, a property manager, and make calls to ensure everyone completed their tasks. 11 months later, the project is finally completed, but not rented out yet.

Lessons:

  • The further removed I am from processes, the greater the chance someone will cut corners or defraud me.
  • Instead of using all my money to buy one property, I should have used as little as I could for down payments on 3 or 4 properties.
  • Finding the professionals needed to get a home ready to rent was not as hard as I imagined it would be.

Property #2

Before the problems with property #1 began to arise, I was excited to be in the real estate game. After closing on the first property, I started looking for another. For my next venture, I decided to look for something that was already rented out to bring in cash flow sooner. I was still looking out of state, but in a location closer to my home state in the West. In March of 2018, I purchased a duplex through a wholesaler and used a hard money lender to close quickly (wholesalers seem to like cash only buyers). I then took out a home equity line of credit (HELOC) on my own home and used it as a downpayment on a refinance into a conventional loan. My calculations ended up being off a little and instead of profiting $100 per door per month, I lose about $50 per door a month. I still think this was a good purchase as the wholesaler introduced me to fantastic lenders, appraisers, inspectors, realtors, insurance agents, title agents, and property managers. I have also been stretched by coming up with a plan to make the property break even in one years time.

Lessons:

  • Existing renters will use the new landlord to get things fixed that have been ignored for months or years. Plan for 2-3 months of rental payments going to repairs.
  • Working with qualified and honest professionals makes a huge difference in the process of purchasing a property.

Property #3

Hoping for “the 3rd time to be the charm”, I started looking right away for the next property. I wanted a duplex, triplex, or fourplex. I made a goal to analyze a deal a day. My prospects were from the MLS, wholesaler email lists I’d been added to, and my new realtor friend. One day a duplex showed up on the MLS. My numbers showed I should make $200 per door. I emailed my realtor to get more info on it. I called my property manager and asked him to go look at it for me. After thumbs up from both of them, I scheduled an inspector for added peace of mind since I wasn’t planning to travel to see it in person. In June of 2018 I closed on my third property. After a couple months of minor repairs, the duplex now brings in about $250 per door per month profit.

Lessons:

  • Good deals are out there. Evaluate a deal a day to recognize the good one when it comes along.
  • A good team of friends tremendously reduces the stress of buying a property while wondering if you’ve calculated and thought of everything you should.

I’m definitely hooked on the real estate game and intend on making it a profitable business and hopefully a career. I’ve exhausted my own money and am now studying wholesaling and/or flipping as a means of providing the downpayment for my next rental property. My goal is to add 5 more doors in 2019, though how I’ll accomplish that is yet a mystery.

When I first started the journey, I had the option to come up with $20k to pay the guru or use that same $20k and jump in myself. I’m glad I opted for the latter for the experiences, lessons learned, and relationships created. I consider my misfortunes and fortunes to balance each other out and plan to have the fortunes tip the scales going forward.

Photo Designed by Photoroyalty / Freepik


Comments (18)

  1. hey Matt,

    Congrats on the journey! My wife and I started about the same time you did. I second you on the need for reliable, trustworthy folks if you’re investing long distance. 

     We’re about 3 hours away from our triplex, and our realtor/PM’s honesty is the only reason its been a success so far.

    Being a newbie myself, that point can’t be understated.

    Thanks again for sharing!

    Nick


    1. @Nick Barlow thanks for commenting.  Good luck on the journey.


  2. What are the best Business Operating structures for taxes and business loan qualifications purposes? I know to be an investor can be a disaster.


  3. inspiring


    1. Thanks @Jorge Rodriguez


  4. Hey Matthew!

    Loved your documented story and I’m eager to connect! I’ll shoot you a PM right now!

    -Tyler


  5. Hey Matthew,

    I am 12 months behind you and looking to close my first out of state property in Dec just like you last year.  If I am at where you are in 12 months, I will be proud of the lessons learned and the way ahead.  Thank you for sharing!

    Jay


    1. @Jay Guevarra that is very exciting, enjoy the ride.


  6. Great write-up Matt!  The perfect comment for me was "The further removed I am from processes, the greater the chance someone will cut corners or defraud me."  

    I have used TurnKey in the midwest and got defrauded heavily.  Instead of selling at a lose I decided to invest $15K more to get the house rehabbed.  We'll see if that was a good decision as I have 1 unit rented in a duplex and it's a year after the purchase.

    I did try TurnKey locally also and the house was rehabbed well from the looks of it, but later found out so many shortcuts that were done and I had to redo roofs, tiled floors, heating vents, and more.

    Lesson learned to build my own team and have my own quality checks in place.  It's sad to see many are looking for the shortcut when no one else is watching, where are the values nowadays...


    1. Well said @Anthony Khan, thanks for sharing.


  7. awesome read Matt, the lessons learned were very helpful and gives me an idea of what to expect in my own learning curve


    1. Thanks @Steven A Provanzano, good luck to you along the way.


  8. Nice article, @Matthew Young. I look around at the older mom-and-pop investors and see that the vast majority of them never crunched the numbers before buying. Most of them failed to follow what is now considered "common sense" advice about buying real estate. Yet they not only survived, they thrived. Real estate is very forgiving. Even a mistake that costs you $50 a month in losses will eventually turn into a winner. 

    Thanks for sharing!


    1. @Nathan G., that's encouraging thanks for the insight.


  9. Thanks for sharing your experiences Matthew, I especially liked that you did not sugar coat or hide the results of your various strategies. There is some good advice/life lessons in there that you've shared for newbies.


    1. Buckner, thank you for reading and taking the time to comment.


  10. Thank you for sharing with your experience. Great examples and instructive lessons for me as newbie. One question, were you scary when you started? I am scary to death to make first step.


    1. Alex, there is indeed a fear that comes with making a large purchase.  That doesn't go away after the purchase either, but I think it helps motivate me to continue to learn and find the best ways to create a favorable outcome.  Thanks for commenting.