Belated Introduction Mixed with Quasi-Success
Hi BP. I've been around the site for a little while and have never really done much more than ask questions or respond to others' posts. I didn't find the site until I had already begun investing, but now I'm here every day reading. I absolutely love the community, so thank you for being a part of it. I also love the podcast. Thank you @Joshua Dorkin for keeping Brandon in line ;) With the site and the podcast, there is so much knowledge, advice, tips, and ways of thinking that are super helpful. So as an introduction and thank you, here is how I entered REI.
I bought my first rental property in 2005 with a VA loan. It wasn't in a good area, and it wasn't a good home. I bought it because it was a split level property that had 2/1 on each floor. My intention was to extend the wall between stairs and put in 2 doors. Add a kitchenette in the downstairs and WHALA! instant duplex. That was the plan. Instead, I met someone looking for a place and she moved in before I started the work. We would share the kitchen while I remodeled and she would pay a lower rate until it was complete. Fast forward and our daughter turned 7 this year and I never did any of the remodel work. Is that a $0 rehab? Perhaps a conversion to "best and highest" use ;) For the record, I DID still charge rent and utilities until she stopped working! Ultimate house hack? I'll let @Brandon Turner be the judge. Our decision to move was finalized when I flew back to town late one night and the taxi driver told me that at night, the taxis are not allowed into my neighborhood to pick anyone up and that if I needed to get to the airport at night I'd have to meet him a mile away at a particular grocery store. Not a good neighborhood to have a beautiful wife and daughter and be gone to work most of the days.
A lesson on leverage: when I bought the house I paid 0% down. 100% leverage. I paid within 3%-5% of the peak price before the market crashed. When I moved 5 years later, the property value was still 10% lower than my principal. I never planned to sell the house, so I didn't care. I found a management company, turned it over, and moved to England. With a tenant, I was paying ~$50/month and hoping that nothing broke so that I didn't go any further into the red. I did this for the next 4 years. Because of leverage, I lost a very important exit strategy, so know your goals. If I needed to sell it, I would have joined the ranks of those who were completely stuck.
A lesson on equity and appreciation: that stuff above only matters when you sell or refinance. As I continued to pay down the mortgage, mostly with tenant money, values and rents began to rise again. I raised rent and became +$50/month after management fees. Today, the property is at the highest value it has ever held, 11% more than I paid for it originally. The rents have come up and my refinance closes on Monday. I will go from my poor cash flow to $250/month in a day. If I let management go, there's another $110/month. Suddenly, the property is an okay (not great) investment, and all I had to do was wait. Everyone says a bad investment can break you, and they're right. But if you can wait it out you will end up okay in the long run.
Since returning from Europe I've become more active in investing. We closed an FHA on a 3-plex in February and I close a SFR turnkey-style fix and hold on Friday. At this point I realize that I am just scratching the surface of something that makes adventure parks look like retirement homes.
See you around the site.