No BS Real Estate Investing:A 6-year diary (with numbers and photos!)
Recently,I've simply gotten sick and tired of what I like to call "over-sexification" of real estate investing.
No it's probably not an actual word,but I'm sure you understand what it means.
Old traditional ways of investing in real estate no longer excites the new generation.The media is saturated by sexy ads showcasing some sweet-talking "self-made" San Diego millionaire hanging off the window of a private jet or standing on the roof of his latest purchased skyscraper.
If you pay close attention,hidden somewhere in the whole compelling narrative is some pitch to sign up to some boot camp or buy a book this brand new genius author has just written.It doesn't take a second genius to figure out where that first genius actually make their most money,and it's not from some real estate portfolio.More likely than not,he made his money selling the boot camps or books.
Sadly,this same phenomenon has slowly but surely taken root in the BiggerPockets community.BP was the last hope of the common man,as we all ran here for refuge to escape the nonsensical bluster and chutzpah of these professional narcissists.
Many posts now appear on BP that showcase simply unbelievable,fantastic figments of some guy's imagination.People claim deals that can hardly be born out in reality and hardly backed up by math.Often,the sole purpose of these posts is to garner "votes" and "awards" on BP as well as to appear as podcast guests.
All that wouldn't bother me too much if I didn't genuinely fear for the harmful effects of such fantasies on unsuspecting newbies on the site who often feel a deep sense of inadequacy and either get discouraged altogether or dive into bad deals that wipe them out before they've even begun their Real Estate journey.
So,I decided to do something about it.Like millions of others,I'm your typical boring real estate investor,conservative and deliberate.I have built a portfolio the traditional way,1-2 deals a year for the past 6 years.But what I will do on this post is give to newbies what my sexy counterparts seldom provide them:a blow-by-blow account of how I built my portfolio,including all the numbers and photos.Zero BS.
So are you ready?
Here we go:
I am a physician.
I know what you're already thinking right there.However,unlike in the 90s,physicians no longer make truckloads of cash.These days,we make low six figures like your average IT professional or insurance salesman.In 2011,I resigned from my full time gig with my physician group and went independent.This is largely because I needed to be in control of my time.I realized the core lessons of the book "Lifeonaire" years before it was even conceived by its author,Steve Cook.More of that in a future blog post.
Anyways,I did lots of extra work in early 2011 in anticipation of a move down to Florida from Cleveland OH.
In selecting a Florida city to relocate to,Real Estate played a huge role.I settled on Jacksonville after careful analysis.I arrived in town with $90k saved up,my entire net worth in life savings at the time.
I was hooked up with a realtor by a friend and she sent me multiple MLS listings that suited my criteria:
2/Location:Historic Riverside or Beaches
3/Listed for less than $200k
Remember,this was 2011,the crash had happened 3 years before and everything was on sale.That is one major advantage I've benefited from.However,I've kept buying every year:more on that later in this blog post.
I decided on a quaint duplex several blocks away from the ocean.Let's call it "Marshy".
The owner owned several on the beach and was retiring.I regret not having enough money at the time to buy more off him till today.
Gross rent in 2011~$1700
Gross rent today~$2400
Current appraised value~$220k
I learned from deal#1 that i could do better with my deal making.So I decided to look deeper for even better deals and drive a meaner bargain.Everything was on sale after all,right?
Let's call this beauty "Cherry".
The owner had inherited it and lived upstairs while renting out downstairs.She wanted to cash out so she could start a hairdressing business.
Initial gross rent~$1500
Current gross rent~$2400
Current appraised value~$270k
All cash depleted.
Saved up all cash flows from Deal#1 and #2.
In January 2013,I was ready.
I determined that buying retail was slow Math.If I wanted to grow real wealth in real estate,I had to figure out a way to buy sick under-market deals.That was exactly what arrived in my email from my realtor.
Some very ugly duplex at the intersection of two streets in my favorite historic district was peculiar in many ways.Upstairs had amateur paint art on all walls of heavy political and religious themes and downstairs had a pole dancing apparatus constructed in one of the rooms.Obviously somebody was running an underground strip club there.
Let's call this one "Acosta".
Anyway,this was a major rehab with new roof,new HVACs,plumbing and electric.We opened up the floor plan and painted inside and out.
Cash(Line of credit from SunTrust)
Rehab costs~$50k (cash advance on BOA credit card)
Monthly minimum payment (LOC and CC advance)~$1200/Paid off July 2014
Initial Gross rent~$1700
Current gross rent~$2000
Current appraised value~$230k
In August,my realtor emailed me a 2/1 REO listing on the market for $30k.This was in my desired area where most SFR homes were selling in the $120k range at the time.I was initially reluctant because my focus was primarily small multis.But i said "what the heck!",value is value in whatever asset class.So I made a cash offer of $26k.
It was accepted!
Let's call her "Cherokee".
The cash was composed of all rental income from deal #1 and #2 plus whatever my saved 15% of income till date came to.
Initial gross rent~$700
Gross rent today~$850
Estimated current value~$100k
Saved up all rental income from Deal #1-4
After Acosta,I'd truly bit the rehab bug.I realized all the money was in creating your own value and not in retail deals.Again I instinctively came to this reckoning several months before joining BP and hearing @BrandonTurner talk ceaselessly about the BRRRR strategy.
This time,my realtor played no role.I was now a hungry shark roving the waters and actively seeking rehab targets.I was browsing Zillow (I don't have direct MLS access) every night with my filters set to capture my exact location and preferred asset classes.
Nothing turned up in multifamily.It was July 2015 and the deals were drying up in Jacskonville,all foreclosures and REOs had been mopped up.But I did find an SFR on a double lot just listed same day by a wholesaler on Zillow:3/1 in my preferred location,needing "TLC" asking $99k.
Zillow always lists contact phone numbers of owners or listing agents at bottom of the listing page.It was 7:30PM,I didn't expect him to pick the phone,but he did.
I asked if I could see it and he said he just happened to be working late if I wanted to stop by.It was a 30-minute drive,but I went there to meet him at the property.An old man who lived there was a super-hoarder who had died inside the home just weeks prior.There was still a morbid stench as we both walked through covering our noses and carefully stepping over junk. I made an offer of $72k which he rejected and insisted I must buy the empty adjacent lot as part of the deal valued at $12k.He wanted all $84k or no deal.
My MAO was $75k,but I knew the market was going crazy,so I agreed.I went with him to his nearby office same night and we signed a contract.
The next morning,about a gazillion "viewers" had "saved" the property on Zillow.
I didn't care.I was under contract.
As it turned out,the title company couldn't clear title on the empty lot.The wholesaler couldn't wait and agreed for me to get out of the empty lot per contract.So ended up paying under my MAO in the end!
Let's call her "Dellwood".
Rehab~$40k (BOA Credit Card)
Monthly minimum payment (LOC & CC)~$1200/Paid off March 2016
Initial gross Rent~$1150
Current Appraised Value~$163k
I forgot to make 2 payments on my SunTrust LOC in late 2015 and incurred late fees twice.Unbeknownst to me,the late fees were not the only cost of my indiscretion.My credit score tumbled 20 points and my LOC was frozen by SunTrust.I could now only make payments and could no longer draw cash.
It was a "long time no see" email from my realtor that brought this one:a surprising REO duplex in April 2016!
Since Historic Riverside was now unreasonably priced and no deals there made sense any more,I'd expanded my criteria to include the neighboring Murray Hill and communicated same to him by email.
Foreclosed from an investor and listed for $115k.
Of course there were multiple offers.I'd offered full price,but once i got a "highest and best" email,I knew I had to be on top of my game or I would miss out on my first duplex in 2 years.So I made a "blow-the-rest-out-of-the water" offer of $126k.It was accepted.
I knew the numbers worked as all the work required was a new kitchen and bathroom for the downstairs unit plus a new water heater.Upstairs was rent ready.
Let's call this one "Antisdale".
Cash/BOA cash advance(75k)+all rental income+15% saved earned income(2014-2016)
Minimum monthly payment on cash advance/CC~$1400(paid off with refy cash~see below)
Initial gross rent~$1650
Current gross rent~$1950
Current appraised value~$172k
There is a lesson here.Both Gary Keller in "Millionaire Real Estate Investor" and David Lindahl in his awesome book "multifamily millions",spoke about taking care of people in your network in order to cement their loyalty forever.
So when I found another diamond in the rough in September 2016 again straight off zillow,I told my agent about it.I let him know that I already spoke to the seller and already agreed a price.All that was left for him to do was collect a commission!
This was an unbelievable probate deal in Historic Riverside which had languished on Zillow for 6-8 weeks mostly because this cute little 3/2 SFR was located right next to the highway (I-10W).
But there was a long term tenant in place already that was paying $850/month.They were asking $60k,I offered $55k and they accepted.
Cash/Savings+accrued rental income/cash flow
No immediate rehab
Initial gross rent~$850
Current gross rent~$975 (I raised rent immediately upon closing:30-day notice)
Let's call her "Phyllis".
I wanted to get out of all debt in 2017.
That was goal #1 in January 2017.Unlike previous years,money suddenly became easier to obtain.Banks were loosening up.I don't think it was a coincidence that we just had a change of parties in Washington a couple of months before.
So I refinanced the hell out of all dead equity and paid off all outstanding high interest debt.
That still left me quite a bit of cash,so I went into shark mode again looking for deals with a microscope.
At the back of my mind was a shift in strategy:I was now looking to transition to larger multifamily buildings in 2017.
So last July,I was swimming in Zillow online again one quiet evening while on vacation in the Baltics and found a fully rented 4-unit (each 2/1) close to Murray Hill listed for $150k by an agent who had been managing the building for several years for the owner who lives in Israel.
I made a full price offer while on the cruise ship in Estonia which was accepted.
I just closed 2 weeks ago.
Let's call her "Alpha".
Initial gross rent~$1860
Current Gross rent~$2110 (sent notices of immediate rent increase to the 2 month-to-month tenants.other two tenants still have >6 months left on their leases)
I'm under contract for an 18-unit apartment building right on Lake Erie in a Grade A neighborhood of Cleveland.
I lived in Cleveland for 5 years so i know my Cleveland,LOL.
More on that deal once I close in a follow-up blog.
Final point to note:
In 6 years,my net worth went from the $90k in saved cash to $1.2MM in real estate.
If you comb through the above strategy carefully,you will agree you don't have to be on a physician salary to replicate it.
If there's enough interest in this post,I'll follow up with details of my refinancing strategy and why I think Cash-out-Refy is a way superior strategy to 1031 exchange in building your portfolio as well as update readers on my Cleveland apartment complex deal.
I will also explain why I think time is way more valuable than money and can provide a bigger improvement in your lifestyle than just making more money.
So what do you think?
Are there parts of my strategy you find bogus??
Let me know in the comments below.