Am I successful or am I an example of “what not to do”?
Am I successful or am I an example of “what not to do”?
This was my original introduction post.
I actually ended up in Knoxville, TN working at the Watts Bar Nuclear Station for the Tennessee Valley Authority (TVA). I’ve been wanting to invest in real estate for decades, I even purchased a Dave Del Dotto course after watching his infomercials. This was back in the early 90’s, I was fresh out of the Navy and was living w/ my parents in San Diego at the time. My first attempts in RE investing were a couple of strategies from Dave’s course.
I first tried to find sellers w/ assumable home loans by putting an ad in the newspaper, “Wanted: Looking for Motivated Sellers” or something to that affect. After a week nobody called. My second attempt to find investment property was to contact distressed property owners that were delinquent on property taxes. I went to the county records office, wrote down a list of about 100 home owners that owed back property taxes and sent out letters offering to help them w/ there problem of back property taxes. I received 3 phone calls, one lady called and asked “how can you help”? I said that I was willing to buy her house to save her credit – she said, “never mind” and hung up. The 2nd phone call was from the daughter of an elderly lady. The elderly lady was the owner of the property and owed about 5 years of back property taxes. The daughter in an angry tone told me to, “Leave my mother alone!” The 3rd call was from an apartment owner and said, “If you can help, I have a million dollars in equity”. Well, I got scared and said “never mind.”
Well I hadn’t done anything w/ real estate for years following my first attempts until about 2000 when I purchased my first home as a primary residence in Garden Grove, CA (near Disneyland). I sold that home for a profit and purchased a bigger home in 2004 in Oceanside, CA (North County San Diego, CA) and I didn’t do anything again with real estate for another 10 years. I had been working for Southern California Edison (SCE) since I left the Navy in 1991. I was stationed at the San Onofre Nuclear Generating Station and obtained my Reactor Operator (RO) License in late 2009.
Sometime in 2012 a coworker planted the real estate investment seed in me again and mentioned that his family invests in small multifamily properties where there were multiple renters which covered the mortgage and expenses with positive cashflow. I didn’t have any money except in my Edison 401K plan, and San Onofre was shut down due to the steam generators leaking primary coolant. Again this was 2012 and I was researching ways to invest my 401K money in real estate. This is where I discovered both the SDIRA and “Biggerpockets”.
In June of 2013 Edison announced that San Onofre will never startup again due to the economics and bad political landscape in California. I ended up being laid off and therefore started job hunting which is, long story short, how I ended up in Knoxville, TN working for TVA on December 2013. During my job transition I became a biggerpockets member. As a new member I was getting blog articles in my email and ended up reading Brendon’s following article:
http://www.biggerpockets.com/renewsblog/2012/09/23/invest-in-real-estate-find-deals-location/
This is the first time I learned about turnkey properties.
The reason I was leaning toward Turnkey properties is because I was hired on by TVA to be a Reactor Operator and that requires me to go back to licensing class. I described to my Mom (a retired RN) what it’s like getting a RO License with the following analogy – imagine the library of information a nurse is required to know, then imagine picking 75 questions at random from that library for your final exam. The exam is multiple choice, but the Nuclear Regulatory Commission requires the distractors (aka incorrect answers) to be believable and they have to approve the RO final exam. There’s a nuclear industry wide statistic that RO candidates have about a 40% to 60% failure rate first time through license class. I put in 10 hour days, including weekends the last time I went through class and TVA requires me to pass the first time through or be removed from the program (meaning potential termination). My license date is in summer of 2016, but I still wanted to invest in RE.
I ended up posting this question on the biggerpockets forums “Turnkey vs. Learning How to Fish”; here’s the link:
https://www.biggerpockets.com/forums/12/topics/116065-turnkey-vs-learning-how-to-fish
I got some good advice and support from the posters and started researching a particular RE Turnkey company. My research lead to listening to 2 different podcast interviews of a partner of the turnkey company I was looking into; this same company advertises ALL OVER the internet (they even show up on my favorite movie news website). I read 2 articles mentioning this same RE Turnkey company. I did a BBB search and found an A+ rating. I’ve read forum posts written by this partner and he seemed upfront, full disclosure and even invited a detractor to his office to see their operation. I couldn’t see any BIG negatives only positives.
I contacted the RE Turnkey company and their goal is to make the RE investing process as headache free as possible, which includes top notch management. I transferred my pension and my 401K to a SD-IRA account and ordered my first property in Dallas, TX. I chose Texas because I felt TX was pro-jobs and economic growth (unlike CA); I chose to jump in because I felt 2014 was still close to the bottom of the RE market. The property closed on March 2014 and our Turnkey company already had a renter. The funny thing is that this was my first rental, with my first tenant ever and in the first month my brand new renter defaulted on the rent. The Turnkey company took care of everything and because the default happened on my first property, with my first tenant on the first month they even paid the court costs for the eviction and used the security deposit to fix up the property. It literally was headache free. Unfortunately I did not receive any rent from my new property until August 2014. I anticipated these type of problems, which is why I purchased this rental free and clear – I did not want any issues during license class.
Because of personal issues I need to early withdraw funds from my SD-IRA with the understanding of the tax and penalty issues. Because the rent from my first property won't cover what I need, I used the rest of my rollover money and purchased 2 more rentals from the same Turnkey company. I ordered the 2 new properties BEFORE I received my first rent check from the first property. The 2 newer properties closed in June of 2014 and I have been receiving consistent income from all 3 properties since about September 2013 (they take the first month's rent as a fee for finding the renters). All 3 houses are free and clear.
SO, am I a success or am I an example of what not to do? Also, a question for the moderator – can I mention the name of the Turnkey property company I am working with?
The problems I see are:
I have NO idea what the actual Dallas market is like.
I did not start small and I went “all in”.
I do not know how to screen or manage tenants.
I do not know how to manage property managers.
I’m pulling money out of my SDIRA.
Caprate is only 8% after all expenses
Positives (may be):
I have good cash reserves.
I have good cashflow (so far)