How I Bought 2 Homes in 16 Months making $40k (California)

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I've been a BiggerPockets fan for years, dating back to when the company started as I was fascinated by real estate and wanting to build a legacy / empire that would last decades after I take my last breath. I never imaged, one day my dream would start to become reality...

Brief Background

After graduating from college in 2014, my first job was a full time marketing manager position, earning $10 per hour. Living in a nice suburban city in southern California, I had no choice but to continue to live at home in order to keep my head above water. Due to company mismanagement, I only lasted 4 months, and found myself working part time as a recreation specialist for the next year and a half, until I was given a golden opportunity: marketing manager for a very successful real estate agent in Orange County. I went from having made $9,000 in 2015 to $36,000 in 2016! During that time, my fiance and I got married, and we already had 1 child and another on the way. We moved into our own apartment early 2016 after our wedding paying $1,050 per month (price includes $50 charge for water).

Home ownership in sight?

After being on the job for a few months, I started to have real estate fever! Real Estate in the city I live in is WAYYYYYYY less expensive compared to homes in south Orange County ($300,000 vs $750,0000) just going 30 miles west. I was unsure how much I could qualify so I asked a lender to run my numbers and see what comes out. Unfortunately, she had a pre-approval around $150k and I needed to get my credit score up to 620 (it was hovering around 600). Bummed, because there were select homes (condos) for sale in the price point but inventory still is very low. It weighed on my mind because we have a household income of $40k (after bonuses) with a toddler and another baby on the way. With no other options, I felt like my only option to achieve the American Dream was to move out of state. Home values were rising and my window of opportunity was quickly fading away....

In early 2017, I decided to give it ago with a pre-approval. My credit increased significantly and there were still a few properties left in my price range so I figured there was hope. My second letter came in higher ($180k) and I was elated because there was a 2 bed / 2 bath condo listed for approx. $165k. I submitted an inquiry on Zillow and the first agent to call me believed there was an opportunity for me to do better but wanted me to cross qualify with her lender. They came back with an approval a little over $200,000 but there was some wiggle room.

The Purchase

After seeing several homes in both Riverside and San Bernardino County, my agent brought me to a property that was around the corner from our apartments in a neighborhood that needed some TLC. The home was a 3 bed / 2 bath / 1251 sqft. attached SFH with a nice size lot and a security gate approx. 30 feet from the front door for added privacy. Inside, the house was a dump! The carpet was red with various stains, both bathrooms and the kitchen needed to be redone. It was listed for $210k, and I didn't have many options but I knew this was the perfect opportunity....30 days later we closed at $208k!

The Renovation - Phase 1

We had a week from closing and when we wanted to get out from the apartment to start getting the home move-in ready. We painted the entire interior of the house with help from family, painted the kitchen cabinets white (it was a yellowish color) and put new chrome fixtures, new carpet except where there was title (the tile would need to go but it wasn't a top priority). We also started working on remodeling the upstairs bathroom, so we used the downstairs in the meantime. 

Upgrades

1. Remodeled upstairs bathroom completely (see photo)

2. Downstairs bathroom - glazed the walls white (the walls were covered in brown tile)

3. New Carpet 

4. Fresh Interior Paint

5. Luxury Laminate Flooring

6. All new Double pane windows

7. Whole house water filter

8. Patio Lights

9. Stone Veneer around front door

10. New HVAC System

11. 3.5 W Solar System

12. Quartz Counter tops in both bathrooms and kitchen

13. Nest Thermostat, Ring Doorbell, Nest HD Outdoor Cam

Approx. $30,000 in upgrades all completed in 8 months.

Financials

Here we go...we financed the property with 5% down FHA and paid approx. $10k towards upgrades with another $10k financed through a non-profit and got the solar system for free as part of a grant program.

Current Rent: $1,900 per month - Cash Flow $500 per month

Home value: $275,000 ($82k in equity).

ROUND #2!

16 months later, I purchased a 2 bed / 1 bath town-home for $189k (appraised for $205k at time of purchase) and got paid 5.5% (2.5% commission since I became a real estate agent earlier in the year, plus the seller was offering 3% - because the seller is related to the listing agent). We did minor upgrades, new quartz counters and laminate flooring throughout.

Today, I just signed off on my closing disclosure for the refinance for this property, reducing my PITI by $190 per month while netting $7,000!

The plan is to rent this property out in a few years, and I can get $1,700 per month allowing us to cash flow $335 (HOA fee of $200 included). It will be higher once it's rented because I am working on lowering the HOA fee as President of the Board, by installing submeters on the property!

The Future is Bright

The goal moving forward is to purchase a new property every two years and utilize an off-market acquisition strategy. With my credit now at 700, I'm able to lock in the best terms and favorable credit card limits. A few months ago my wife started working and I changed positions, bringing my income up to $50k flat. The income my wife makes will be used to pay off our credit cards while concurrently saving for a down-payment. We are realistically 3-5 years from another purchase as our next home would be a larger home in the mid 300k. 

I wanted to be very open and transparent with my journey as it is continuing to be written and be an inspiration to anyone out there that is reading this to know, IT CAN BE DONE! I did it on $40k per year raising 2 kids on 1 income, in California.

@Andrew Brown Thank you for sharing your journey with the BP community! This is very impressive and very inspiring! I live in the LA area and have yet to do Deal #1 but this gives me hope! 

@Maryann Harris second property was bought owner occupied. I rented my first house out concurrently while I was in escrow. I lucked out because I was already working with a lease client whose application was a tough sell, so I gave her the opportunity to rent.

@Whitney Castillo I appreciate the kind words. As I reflect even now, I’ve beat tremendous odds growing up in foster care until I was 7 and I always had doubts I would ever find success but I kept my faith and having the support of my wife was big as well.

@Andrew Brown - Congratulations. Keep up the hard work. Let me know if I didn’t understand anything. You lived in rehabbed a 3/2 house that’s now worth 280k+ and you rented it for 1900/mo to someone with mediocre rental credentials (income? Credit? Both?). You bought a 2/1 condo worth 200k+ and live in rehabbed it and plan to buy something else and rent this one too. Your wife was ok with downsizing? You have credit card debt. (you’re paying interest on? What rate is it at? Should you throw all your savings at your debt snowball vs buying another property?) Are you planning on monthly/quarterly checkups to make sure your tenant doesn’t ruin your beautifully rehabbed house? A fire inspector where I live said that he sees beautiful houses get trashed by evil people all the time if they don’t check up often.

Three things I’ve done to build wealth that may help you - 1. I maintain zero interest paying credit card debt. I used a credit score of 800 to get about 100k of 18 month 0% apr credit cards and did a rehab with them then paid them all off. Got like $600 in sign up bonuses. Never paid interest on credit cards in my life. 2. I buy bigger houses and rent out spare rooms in my live in rehab houses to nice working professionals and share a kitchen and laundry and live on the cheap or even get paid to live in my own house. (Buying additional 100-150 sf bedrooms costs X (usually 20-30k) and yields $700-1000/mo in rent). So my deals are like 5/3’s or bigger and get paid like $700x3 from 3 renters in my own house and I have the same space as having a 2/1 condo. Note - bedrooms aren’t always coded as such in mls. You can rent out the “office” or whatever. 3. I try to get higher yielding properties, minimum 1% rule. I bought a house for 180 and I’m into it for about 220 and I get 4900/mo of rent from working professionals using strategy 2.

@Natalie Schanne thanks for your response. My first tenant was a personal referral and I knew she was going to take care of the place and unfortunately she only lasted 7 months but made it very easy for me to get in a new tenant without any issues. My new tenants are very well qualified and they are perfect.

Downsizing from a 3/2 to 2/1 was ok with my wife because it was less space for her to clean and my kids are still young. It was a strategic move and I got this home as a steal so it was worthwhile. Moving forward, I won’t buy anything less then 3 beds.

As far as financing, we did utilize 0% interest credit cards and we kept shifting it after the intro period was over until we were able to pay it off. Despite my wife not having any income at the time, her credit is over 800.

I have home warranties for both properties and I have a team of affordable handymen.

@Natalie Schanne I would really love to pick your brain some more about your strategy. Renting out rooms in a larger home probably won’t fly with my wife unless it was a friend (but I have thought about it lol). The other thought I had was to purchase a large home that has a separate living space (in Cali they call them multi gen suites) and do it as an off market so I represent both sides of the transaction. These homes can be had for about $450k-$500k

@Andrew Brown

Hi Andrew! Your journey is awesome.

I’ve been on BiggerPockets for a while and looking to get started. Just have been intimidated for a while but now I feel more confident and ready.

Are your properties in the Lake Elsinore area? Sorry if I missed that.

@NAZMUL HUDA yes both my properties are in Lake Elsinore and there is a ton of value. For example, a modem match of my 3/2 rental that I purchased for $208k just received a full price offer for $275k, pushing my value closer to $290k. Best part, is that there are potential sellers looking to unload for about $250k.