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Michael Ealy
  • Developer
  • Cincinnati, OH
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From Bankruptcy to 1,000 Units (Part 1 - Thru The Dark Tunnel)

Michael Ealy
  • Developer
  • Cincinnati, OH
Posted Mar 28 2019, 15:03

What I am about to reveal below is a chapter of my life that, truth be told - I am embarrassed about. However, I have decided to share my story to inspire and teach a lesson to all investors, specially newbie investors and that lesson is:

You can turn your life around no matter how bleak it is. And real estate investing, IF done correctly - is a proven way to help you achieve your dreams.

But, I am getting ahead of myself. Here’s part 1 of my story - From Bankruptcy to 1,000 Apartment Units - Part 1: Through the Dark Tunnel.

-------------------------------

In late 1998, I caught the “real estate bug”. I read and fell in love with the book of Robert Allen - “No Money Down”.

So I worked three jobs - a newspaper route starting at 4 AM, then a 9-5 job and then I went to the football stadium and sold beer at night. After 6 months of doing that, I saved up enough money to pay off my debts and have $3,000 cash in my bank account.

My First Deal

I found a 2-family property for sale and I used what I learned in Robert Allen’s “No Money Down” book. The seller seems motivated so I negotiated a land contract. He was asking for $5,000 down and the rest is monthly “mortgage” payment of $700/month. I offered him $1,000 and we agreed to doing it for $3,000 - $1,000 down and $2,000 payable over 2 months.

I was pretty excited - and thought I was pretty smart. I turned over the upstairs bedroom and did the work myself. I spent about $500 in materials. Then I rented it pretty quickly for $500/month. I also convinced my sister to live with me in the other unit and she paid me $200/month. I thought and told myself “Wow, I did it. I am living ‘rent-free’ since other people are paying my mortgage for me.” But of course, I didn’t know it then but this building is not really breaking even since I am in charge of utilities, taxes, repairs and maintenance, etc.

But my first deal is enough to encourage me to buy more units using the creative “no money down” strategies I learned. In a little bit over a year, I’ve accumulated about 20 units and I even acquired 2 car washes from a seller as part of a deal. And I bought my own home to live in.

The Beginning of The Problems

But… I overleveraged these properties. I basically paid close to market value for a lot of them in exchange for buying them with ‘no money down’ (and in some instances, I got “cash at closing”). Moreover, I got cocky. I bought myself an expensive car (Infiniti) to show I “made it”. The truth was I was drowning in debt. Lots of it!

It didn’t take a lot. One vacancy here. Another problem tenant there. A furnace repair that was unanticipated. And I tried to keep it up by using credit cards but of course that just made my financial situation worse. Pretty soon - I began missing mortgage payments on one rental property after another.

In just three years, all my properties including the house where I live are ALL in foreclosure. I immediately lost 2 out of 7 properties. That was when my godmother told me about shortsales. That delayed the foreclosure process somewhat and it gave me some breathing room but it was just delaying the inevitable. I sold the house I was living in via shortsale to another investor who then agreed to rent the property back to me. But my money problem was so bad I couldn’t even keep up with the rent payment. I even begged the gas and electric guy NOT to cut off my gas and electric.

I Lost It All

Eventually, the lenders got all my rental properties.

Then, the unthinkable happened - a real estate investor - me - got evicted from my own home because I didn’t have any money to pay the rent. At age 30, I had to move back to my parent’s house and I moved back to my old room. Of course my mom never expected me to live with them again so she had my room painted lavender and pink!

Oh and I couldn’t pay my car payments too. I knew it was just a matter of time for it to be repossessed by the bank.

I was about to file bankruptcy when a smart person I met at the car wash I used to own told me NOT to do it. Sometimes we meet people for a reason. Good thing I didn’t file bankruptcy but the truth was - I had negative net worth with no money coming in (in fact at this point, I was looking for a job). So technically, I was bankrupt!

Something “funny” happened to my Infiniti. I parked it and another car slammed on it and wrecked it. The bank was about to repossess it but because of the accident, the insurance company of the guy who wrecked it actually paid off the car note and paid me an extra $500. But now I didn’t have a car.

I had to borrow money from my sister to buy a car. It was a used Toyota that I bought for $2200. It was good but after 3 weeks, its clutch went out. I fixed it myself because I couldn’t afford to pay a mechanic. Its battery went bad after a couple of months but I can only afford to buy a used battery which was smaller than the battery it had. So every morning I had to readjust the battery to get my car started. A few more months later and now the tires were flat and need to be replaced. But of course, I didn’t have the money to buy new tires so what did I do? Every morning - I go to a gas station and filled up the tires with air so it would be enough for me to go to my job. Some of the kids who were walking by to go to school who noticed this “routine” even called me “Four Flats” because every morning the four tires of my car were flat!

At this point, I became depressed. I lost it all. And everything seemed bleak.

New Beginning

Humbled and humiliated, I started to pray a lot and went to church for the first time in a long time. I also started reading. I read a lot. I read about money. I read about leadership. I read about good leaders and I read about bad leaders. I voraciously consumed every book on leadership I could find. I also listened to audio CDs about money, investing and about leaders while I drove. And what I learned would change my life. Here they are:

  1. Leaders and successful people believe in their vision so strongly that it is real to them already (even though it’s not yet a reality for everybody else)
  2. Good leaders and truly successful people live by the Golden Rule (“Do unto others what you want others to do unto you”); and
  3. You have to commit to your goal and take massive ACTION daily to make it happen

So I envisioned myself high up driving an expensive truck even while I was driving my Toyota “Four Flats”. I was so broke my parents even had to pay my cellphone bill but I envisioned myself as a successful real estate investor talking on the phone doing deals with buyers, sellers, investors, lenders…and this time I would do it right. I would buy properties at a discount. I would have low overhead by living life simply (not fancy). I would succeed.

And I put up this vision in front of me everyday even though I didn’t know how I would do it.

That vision in my mind was the “light” in this dark tunnel of bankruptcy and it guided my every step.

One of the steps I took was to study to become a real estate agent. Little did I know that this one small step was the way for me to get back on my feet.

{to be continued in From Bankruptcy to 1000 Units (Part 2 -Rising from the Ruins)}

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