How I Became a Real Estate Investor: This is not a great story

In 2005 I had just separated from four years in the US Navy had no cash and enough know how to be dangerous. I was 25 years old. My wife and I had married earlier in the year and thought it was time to stop renting and buy our first home. We found a realtor and began our search.

If memory serves me correct, I believe we looked at maybe three properties before making our choice. Our realtor said, “This is a great place, my mother lives in these units” (they were condominiums) so we thought, awesome if his mother lives here they must be great. We bought the property, a two bedroom, two bath, 969 square foot unit for $136,000 and financed the sale price and the closing costs, with no money down on an 80/20 5-year ARM. I had no idea what that was, but the realtor, the lender and everyone else said, “Awesome, you qualify” we were ecstatic, we closed on Halloween 2005. That happiness did not last forever.

Things Could Have Been Worse

In 2010, we received a letter from the bank stating that our mortgage was going to increase from around $950 per month, to around $1600 per month. We found out what ARM meant, Adjustable Rate Mortgage. Luckily, we maintained good credit, managed to re-finance the loan with our credit union, and actually lowered our payment to under $950. A temporary panic became a positive outcome. Not everyone, from what I hear was this lucky. Less than a year later we moved.

Our Second Home and My First Experience as a Landlord

In March 2010, I became a minority partner with my previous boss. We opened up an Anytime Fitness franchise about an hour from where I lived. I convinced my wife to let us move closer to the gym, so I could be closer in case anything went wrong (there were many midnight calls due to our alarm system). This may have been the worse financial decision we ever made. The market value of our home had dropped by 50%. Comparable units (nearly identical) were selling for $60,000. We still owed $130,000 plus. With no idea what to do, we decided to rent it out.

I bought Property Management for DUMMIES by Robert Griswold and went to work. I purchased an ad in forrentbyowner.com and they even sent me a free yard sign (bandit sign). I found a tenant within a week. He worked security for a local Navy base, so I based my screening decision solely on that. Luckily, he was a great tenant and stayed for a couple of years. Later tenants were not always great, but that is out of scope for this post. Let us talk about our second home.

After a year of renting a home close to my fitness club, my wife and I had this hair-brained idea to purchase another home. The interest rates were low (3.25%), the market seemed to be stabilizing, and we were paying a ridiculous amount for rent. We found a three bedroom, two and half bath, 2,436 square foot, and beautiful condominium in a golf community. It was the second home we looked at. We paid $232,000 (short sale) for it with zero down and seller paid closing costs. Our real estate agent probably received one of her easiest commissions ever. Again, we based our decision on emotion and the ability to obtain a loan. We lived there from 2012 to 2015. January 2015 we moved to Japan (my wife is still active duty military). This time our property had increased in value by about $30,000. I called up my first real estate agent and asked if he thought I should sell or rent. After a short consultation, he recommended I rent. I followed his advice. He also recommended that I replace the carpet and paint. His brother was a contractor, so he referred me to him. His brother, the contractor quoted me a price that I felt was a little high. The first smart thing I ever did in real estate was to get another quote. I called a friend of mine (we train Jiu Jitsu together) because he did a great build out of my fitness club. He recommended a couple of people and they came in almost half the price. Note to self, always get at least three quotes and if possible get them from referrals you trust. $6,000 later I had one neutral color of paint and one neutral color of carpet through the entire house, minus the tile areas and the wooden floors. The contractors did a great job.

Giving Up My Property Management

In January 2015, I was heading to Japan for at least three years, did not have the time to find a tenant, and was not sure how I would manage my properties remotely, so I hired a property manager. I actually managed my first property remotely for the first couple of months, but then the water heater burst, flooding half the unit, and I was struggling with a 14-hour time difference and trying to find contractors to repair. I actually missed an email my tenants sent me, and did not realize this happened until 72 hours after the fact. They could not do anything, as they did not have the funds. I am not sure if it was luck or not, but they also were late on rent for the past two months, so I think they felt we were even. I did not want this to happen again, so I asked my property manager to take over. This was both a good and bad decision. Receiving a check every month for not doing anything is great, but because we did not purchase these with any financial literacy, we lose money every month. My property manager charges 10%, plus a $15 (BS in my opinion) administrative charge. Everybody else charged a flat 10%, but he called me back within minutes of me reaching out, and was faster at responding than everyone else. I thought that was worth the extra $15. He also was able to get a qualified tenant into my second property within a week.

My Current Dilemma

Here I am sitting in Japan learning all I can about real estate. Thanks to Bigger Pockets and the BP community, I have learned more in the past week, than I learned in all my years. There is nothing like reading real stories, from real people, that have gone through the same struggles, or who have found success in real estate. I wish I had found this community before I made my first purchase. My lack of understanding costs me over $20,000 a year. I will share that story with you in a following post. You would think I am crazy, but I am actually more excited than ever to get involved in REI. To me mistakes are just lessons in disguise. If you can uncover them, you learn a great deal. I am ready to turn a $20,000 annual loss, into a $120,000 annual gain.

Please comment below if enjoyed this story, or if you can relate, or if you just want to tell me how much of an idiot I am. Thank you for reading and I hope that we can all find success in real estate investing.