First, thanks to BP community and the amazing people here. I have made contact with folks from CA all the way to NY and down to AZ. Thanks to all the BP Podcast hosts and all who have been interviewed, thanks for taking the time to share your knowledge, it’s so valuable to newbies like me!
MY RE STORY
My RE story begins with immigrant parents who invested in rental property in their early 20’s here in the states. Rentals are very attractive to immigrants as compared to the stock market because property is easy to understand, you can touch it, you buy it and someone rents it. That being said I grew up working in my parents rental properties, they owned 4. My father has always been a staunch believer in real estate and his saying is “God only made dirt once”.
Growing up he instilled in me that paying rent is a waste of money and you should own a home as soon as possible. So, at age 20 I cut the largest check of my life for 20K (from saving and working since I was a kid) and we purchased a home together when I went away to school as an investment and a place to live. Idea was that upon finishing school we would sell it and I would get my money back plus some, home was purchased summer of 2006 and planned to sell in 2009. I had no RE experience, didn’t know anything about cash flow and my father was betting on appreciation. Well 09 came and we could not sell the place and could not drop price fast enough to chase the market. Long story short we had to do a short sale on it, and it was hell for my folks. My father felt bad and did not want me to lose my money so he gave back what I put in and not a penny more.
Got a real job in 2012 after grad school and after doing mission work traveling the midwest and east coast spending about 2 months in OH. I bought my primary residence in 2013 but REI still attracted me.
In 2015 I got married which really put a damper on my REI ideas since my wife wanted nothing to do with real estate and saw it as a very large risk compared to traditional retirement accounts. Her folks never messed with it so it was foreign, yet for me my folks never touched retirement accounts so that was foreign to me. And so goes the meshing of married life and spouse backgrounds.
EDUCATION IS KEY!!
My thought was, how am I ever going to get my wife on board with this? RE is so powerful and amazing. I spent all of 2017 reading and listening to podcasts about traditional retirement accounts. We were putting money in a ROTH IRA and my 401K but I did not actually understand how it worked and where my money was going. I did not like that, so I set out to learn as much about retirement accounts as possible. Ended up learning our investment person had us in front loaded funds with the ROTHs, which ticked me off. So ended that very fast and took my money to Vanguard and I manage it myself now.
2018 came along, I found and joined BP in March and read Rich Dad Poor Dad. MY RE FIRE WAS RELIT!! This time around I started devouring BP articles, RE info, and listing to podcasts every single day traveling to work. I am only now at number 275 starting from 1. As I listened to the success stories I also started sharing what I was learning with my wife and when I found a podcast guest that was female or a couple I would listen to it with her. Over time she became more comfortable with the idea of buying a rental property. She saw that I was doing my home work and that I was not blindly leading us to utter destruction. SHE WAS ON BOARD!
Oh where to look for property, well my own backyard of course!! So I began looking online and running numbers on an analysis spreadsheet I built. I connected with an agent and was being sent MLS listings. As time went on I began to realize that my county was not a candidate for cash flow even with 20% down. My own home has increased 70% in value since my purchase. Average home price is around 300K with a rent of 1200-1500. Great for bay area folks, bad for me! I took out a HELOC on my personal home just as a tool to have for cash offer if I came across it, NOTHING! The idea of self managing a property and seeing it every day was losing its battle in my mind.
I kept thinking where else can I invest with cheap homes and cash flow? I know, let me look in OH since I spent 2 months there. What I found online was blowing me away. Homes for 50-100k that I could buy outright and cash flow from day one. I reached out to several people in the area and even posted a thread and got a lot of great input. Spoke with Michael Swanny who was a podcast guest to get his input as well. Was planning a trip and kept talking about it with my wife. The more we spoke the more I realized I was not ready to buy my very first RE property out of state. It took a long time to get my wife warmed up to the idea and I did not want to blow it on something so far away we could not see. If I was single I probably would have pulled the trigger.
So where to next, well after listing to 100 podcasts I kept hearing over and over that if your marked is too hot start looking further away. They kept saying there is usually something within a 2 hour drive from your location. So that’s what I did, I began looking north where my wife was originally from about 2 hrs away, same story as our town as far as rent/price ratio so that was out. Next I started to look in the southern central valley and lo and behold, there it was 1.5 hrs away, FRESNO!!
I decided to zero in on Fresno. I also wanted to jump into multifamily properties 2-4 units. The reasoning was to acquire more properties with fewer loans. I started connecting with folks here on BP in the Fresno area and continued to analyze deals there. I found an amazing realtor, give a shout out to @Jeff Zimmerman who works with investors and understood what they are looking for. He was awesome to work with.
In December of 2018 we closed on our first rental property! A 4 Plex in a C class neighborhood. They are all 1 bed 1 bath units which was not my preferred choice but will do. To make the down payment I used money from my handyman side business I started in 2016. This deal is not a home run by any means but it puts us on the playing field out to first base. I spent the week after closing on it making repairs found by the home inspector. Some of the rents have not been touched for 8-10 years so I plan on raising those this year as well to help increase my cash flow.
I still have ideas of investing out of state but plan on learning the the ropes locally first.
YOU CAN DO THIS!! If you can buy a personal house you can buy a rental property. If I were to do it over I would have truly looked for an opportunity to house hack my primary residence and purchased a multifamily instead. As it is though, the HELOC will be paying for the rehab on our first flip properly currently in process. I'll save that project for another thread!
THANK YOU FOR READING and if you have any questions please let me know. Sorry about the long story but what we have to share are our stories. This is how folks connect with each other. I hope this inspires 1 person to start looking somewhere other than their own backyard and start your journey to FI because that is why my wife and I are doing this.
Congrats Kevin! Glad you finally got one. Can’t wait to hear about that flip
@Mark Silva , thanks! Just kept looking but took a while. Wanting to purchase another one ASAP but money is going toward the rehab instead and possibly a new primary residence if we can find one. I think I am going to start a diary on this rehab for folks to follow along. I just need to find the right forum to post in. Any ideas?
Right on, great story! I'm with you - the Modesto/Turlock area is not the easiest when it comes to finding strong cash flow. Glad you were able to jump in anyway and not let that hold you back! Love hearing about the process of getting your wife on board - I'm slowly but surely getting my wife more excited about it.
@Kevin Moules so glad to be a part of your story man! thanks for the shout out!!! Here's to the next one!
@Jacob Friedrich , thank you. CA in general is not the best for cash flow unless you by outright. I would love to self manage and put that extra 10% in the bank. However, would need to find one heck of a deal to make it work.
@Jeff Zimmerman , thanks for helping us on the journey!! Hopefully there will be another one sooner rather than later!
How do you manage the properties in fresno?
Congrats on the journey
We have a property management company taking care of the units for us. When I am in town I always make sure to drive by the place just to see if it's staying clean on the outside. I am a neat freak and do not want any trash or misc items just hanging out. There have been some frustrations so far, partly due to 3 tenants being on section 8 and the county taking forever to get info to us. I am hoping to be sailing smoothly by June. That being said we finally got our first rent deposit this month! It was good seeing that. Been paying mortgage out of personal account at the moment.
@Kevin Moules I know it's been a while since the post. However, I wanted to say congratulation and thank you for sharing. Very inspiring!
Great story Kevin, congratulations! Thanks for sharing all the details, very inspiring.
Thanks to you I just learned that you can get a multifamily property with a FHA Loan. My husband and I have been trying to figure out how to get a multifamily property, live in one of the units, and avoid putting down 20% for a downpayment. Way to go!
@Kevin Moules I live in Oakland but have traveled to the Fresno area on a few occasions. Can you discuss the area you purchased in and any other raw numbers (i.e. purchase price, rent of units) and what you've done since to increase the value? Since it's a 4-plex, the usual cap rate/net operating income numbers wouldn't seem to apply in terms of value-add but would be interested in learning more about any increases in rent and income that you've added. Thanks!
@Mashika Patrick , yes totally a great way to get into investing doing a house hack with an FHA loan putting down only 3.5%! However I would encourage you to look around and look for conventional loans that will allow you to put down the same amount. Before COVID, Chase was offering a conventional loan program only requiring 3% down when I talked to a loan officer at my local branch. Even if you break even with the deal its still a good investment in my book because when you move out the unit you are in will make the thing cash flow. Meanwhile your mortgage is being paid off by your tenants!
@Steve F. , I purchased this in the Lowell district which is a C class area. From what I was told by my realtor is that it is an area being fixed up as time goes on due to its proximity to down town. However I am not really sure now that where my property is if it will ever get fixed up per se. There are some sfh in the area being remodeled.
Purchase price was 275K, rents at that time were around $2400/month which were under market value. Some of the rents had not changed in 10 years from the lease agreements I saw.
Your right on the cap rate not really defining the value of the property since it is considered residential. Its been quite the up and down with this place in the last 1.5 years. Evicted a tenant right off the bat that was paying $650, and turned over unit and rented out for $750. Unfortunately the gal that moved in has not paid rent for 3 months because she lost her job due to COVID so that sucks.
One of the tenants that was paying $625 passed away in April, turned unit over and is currently rented for $795. The other 2 units are still section 8 and I raised rents $25 last year so they are at $650 which is obviously wall below market. Was going to increase again this year and then virus messed that up. I can only raise 8% a year now do to new laws so it will take a while to reach market rent without a turnover.
Property value is probably around $325 at the moment and would be higher if the rent in the other 2 units were higher.
Thanks for the tip!
@Kevin Moules thank you for this success story. I'm starting out and my wife is very reluctant right now. Could you ask your wife if there was a particular podcast episode or book that planted that seed for REI in her?
My wife worked the front desk at a Chicago leasing company for years and met several slumlords and deadbeats that turned her off to real estate in general. I gotta get her to come around one way or another! Thanks again for your story.
@Jonathan Yelton , thanks for reaching out! There was not anything in particular. It was more like me taking the time to show her numbers on different places and what Real estate could help us do in the future if we grow it enough.
My question to your wife is why did slumlords turn her off? Is that the kind of rental property she thinks all landlords provide? Does she see herself providing a nice home to someone in need of one?
I have a feeling she is thinking that when people find out you own rentals they will automatically think you guys are slumlords because there are a lot of bad apples in this business. I am a handyman so I see it all the time and its gross. That's not what I want to provide for folks. I just fixed up a rental last year that was nicer than my own home! If someone were to say I was a slumlord I would show them pictures and ask them if they think a slumlord would provide such a place?
Just some thoughts.
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