RE MAKES LOWLY PAID TEACHER MULTIMILLIONAIRE!!!

RE MAKES LOWLY PAID TEACHER MULTIMILLIONAIRE!!!

Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes

I realized in February of 2011 that my ladder was leaning against the wrong financial building. Sooooo, I started to use my savings, refinancing my personal home, and taking out my IRA's and 401K money through the course of a little over a 3 year period and each time I took out that money, I took out enough to put 20% down on cash flowing San Diego single family condos. We averaged between $25,000-$30,000 for each down payment. If you know anything about San Diego Real Estate, it has tremendous appreciation potential. In 2011 when we started investing, we were stealing properties with excellent cash flow by short sales and REO. Our original goal was to replace lost W2 earnings, that I realized was occurring. I simply wanted to replace about $12,000.00 in W2 earnings I was fearful of losing in 2012. We then over the course of a 2-3 year period had accumulated 10 dirt cheap condos. In about the beginning of 2014 something miraculously started to occur. My Condos started to appreciate wildly. Many doubled in value as of today. I being a teacher here in San Diego for a Catholic School and a Community College too, am I life long learner and from 2011-present have soaked up so much information from experts in the area of creating wealth through real estate, realized my return on equity was at a minuscule 3%. That was unacceptable. We also started pooling our money together in my family and started in the beginning of 2015 to buy high cash flowing single family in Ohio. We have 8 right now in Ohio. We loved the cash flow alone.

Then, here is the real kicker. Upon all my learning and investigation, I found out, that all this cash flow was tax deferred and it really blew my mind. Thirty years in the rat race and in a few years if I play this right, I could surpass all W2 earnings with cash flowing rental real estate. Then, I realized if I take one or two pricey San Diego Condos and do a 1031 exchange, I can buy a million dollars worth of Multifamily Apartment complexes, with no money out of pocket. When I realized I can trade $8,000.00 tax deferred cash flow per year in for approximately $30,000-$40,000 per year in Ohio, where I have my other single family, already with a property manager I trust, I was all in. Soooo, now fast forward to Aug 4th of 2015, and yes, I have control of over $4,000,000.00. That includes 2 personal residences valued at over $1,100,000.00 in equity combined, 5 condos in San Diego, valued currently at $1,500,000, 8 single family in Ohio valued at $300,000, those have no mortgages. Also, I have 3 apartment complexes in Ohio valued at $1,600,000 appraised value this month. Soooooo, when adding, I come up with $4,500,000 in total real estate. The 8 Ohio single family properties we paid cash for. That is $300,000 in value for single family in Ohio. $600,000 equity remains in my 5 San Diego Condos, and $450,000.00 down payment money for the three Apartment Complexes in Ohio, Sooooooooo, the total net worth is about $2,000,000,00. My success is primarily due to buying low in San Diego and riding the wave,. The real X factor is moving dead equity into higher cash flowing properties. Specifically, Apartment Complexes. I love the control this gives me to increase NOI.

Thus, the banks say I have increased the NOI, increasing the value of the complex. Two years later, 1031 exchange and use all that appreciation to buy a bigger complex and do this again and again. Defer and increase deferred cash flow. Keep repeating this process until you die and your kid or kids inherit at a stepped up basis.

This all was due to investing in San Diego real estate.  Get this.  It was all before Warren Buffett came out and said, if he had management and systems to match he would buy over 150,000 single family. 

People here thought I was making a big mistake. Why buy when it is sooooooo low. They said property values will never go up like that again. I was buying for cash flow at the time. Appreciation just happened. I recently heard that people with low 600 credit scores and under 600 credit scores are getting loans again. Based on history, California will be the first to have prices Real Estate prices to escalate rapidly and also the first to plunge rapidly. I will sell all my pricey San Diego rental property in the next 12-15 months. We should be at an unsupportable peak at that time. 

That means not enough high paying jobs to support that price level. I see soooooooo many million dollar or greater homes out here it would make your head spin. Those same homes were going for $700,000.00 or less 4 or 5 years ago.

Regardless, without us slowly purging our IRA and 401K, this never would have happened. By January 1st, we should have $144,000 cash flow per year and we still have 5 rental properties in San Diego that we will trade in by 1031 exchange in the next 12-15 months. Right now, I am 1031 exchanging a condo I puchased for $120,000 in 2012, that is currently cash flowing approximately $5000.00 a year for a 12 unit in Euclid, Ohio that should cash flow at least $15,0000 a year. I should be able to increase that to at least $20,000-$25,000 in the next 2-3 years.

The plan is to continue this business strategy and in 7 or 8 years time have approximately $50,000,000.00 in total worth of all Real Estate. Also our net worth will be approximately $16,000,000.  

If you reach for the stars, you may not get there. However you may grab a handful of clouds. Certainly, you won’t grab a handful of mud!!

Swanny

Isn’t life grand!!

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Investor · West Bend, WI · Member since 2014 · 214 posts · 149 votes
10y

wait for it.... wait for it.... a BP podcast is in the very near future for you.... :)

Congratulations.

See this reply in the discussion

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  • Real Estate Broker · North Richland Hills, TX · Member since 2013 · 1k+ posts · 607 votes
    10y
    Originally posted by @Ashley Wolfe:
    Originally posted by @Michael Swan:

    The more reading, study, research, listening to LUI Lifestyles Unlimited INC. Podcasts and attending their 2 day seminar in Houston and online

    I'm looking for this podcast and only see episodes dating back to this October.  Are there more episodes outside of iTunes?  Also, when did you go to this seminar in Houston?  I'm in DFW and grew up in Houston so, if this seminar is worth it's weight in gold, I'll consider paying to go to the next one.  Thanks!

    Ashley, I've taken the seminar twice, and it's very good.   After taking it the first time, I joined Lifestyles' Preferred Investor Group (PIG), which invests in multi-family.   I'm not as enthusiastic about their single-family program, although many members of it have been very successful.

  • Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    10y

    I listen on Tunein Radio App.  The latest one on that app is Nov 9th.  The last one before that is Nov 6th, 5th, 4th, 3rd, 2nd.  Get that app.  I believe it is free.  I have had it for at least 3 or years.

    Swanny

  • Realtor · Atlanta, GA · Member since 2015 · 97 posts · 31 votes
    10y

    @Michael Swan Your story is truly amazing! You are teaching by example with what you've accomplished. No better person to receive this much success than an unsung hero: a Teacher!

  • Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    10y

    Hi Patricia,

    Georgia area should be a nice emerging market now.  How many properties do you have so far?

    Swanny

  • Realtor · Atlanta, GA · Member since 2015 · 97 posts · 31 votes
    10y

    @Michael Swan still fairly new to REI and taking the time to educating myself on multifamily investing and creative financing strategies. I'm looking forward to the day I can post on BP that we've purchased our first rental property!

  • Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes
    10y

    @Michael Swan, Congratulations on your success and welcome into the millionaires club. You're spot on about SD property peaking. As a San Diego resident for the past 35 years and a OC resident before that for another 30+ years SoCal property has once again peaked.

    In fact I've been seeing an interesting increase in foreclosure activity in the past year or so especially in the North County area. I was all set to start investing again in SD but I'm not liking what I see starting to trend right now. You're also right about the income to debt ratio starting to get a little out of whack as well. 

    I'm not as bullish on SD RE right now as I am on APPL and Disney stock quite frankly. I think another bubble is lurking in our midst and that a correction is looming so I'm sitting on the RE fence for awhile in the San Diego market. At least until this next election cycle is behind us and we have a little better footing on what's going to be happening with the economy overall.

    All that stated, however, RE is, as they say, LOCAL and it's good to see one of my homies stepping up and making some plays in other more viable market areas. This is something I've been thinking about quite seriously lately, however, we're presently involved with some commercial RE transactions and looking into buying heavily into a Nationwide chain of Express car washes that are expanding into the SoCal market so traditional RE may be off our radar screen for awhile. But good congrats to you and good luck with your ongoing RE career.

  • Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    10y

    Thank you all for your replies,

    Here is another interesting trend I have discovered through all my education and experience.  For every area that is beginning to peak and be the end of a phase 2 selling market like San Diego, there are other area that are in a phase 1 buying stage.  The people in these particular areas (Residential and Commercial brokers, residents, etc...).  Don't even see it because they were hit so hard and haven't noticed the jobs, downtown building, Big events, airport restoration and modernization, occupancy rates, sports teams building state of they art stadiums etc.  They can't see it rights in front of their eyes.  All of this is occuring in the area I am investing in right now.  I couldn't believe it when I was lounging at my hotel in North East Ohio and I told the people about my acquisitions so and they couldn't believe what  I was investing in and where.  

    They talked to me about how low the prices  have  tumbled since 2004.  They couldn't fathom that their part of the country could be an emerging market.  They talked about how a large (20%) Mexican population had migrated.  They were not happy. I informed them that the mexican families I rent to in San Diego are hardworking and paying their rent is a high priority. I also tried to educate them that I am purchasing apartment complexes and I want to rent to such hardworking people that are not likely to buy a place of their own and rent from me.  They could only see difference in these people and had trouble understanding me.  I then talked to them about the National Republican convention coming to Cleveland in 2016, the associated boom for businesses, the modernizing of the dungeon looking airport, Cleveland Heights Coventry area, Ohio City, Shaker Heights, Eastern expansion, the amazing hospitals and top of the line clinics, numerous universities, jobs associated with the building and service industries that benefit, Lebron James, sports teams, hall of fame and the list goes on and on.  

    I am excited out of my mind about all the signs I see of an undiscovered emerging market.  Sooooo,  I choose to invest in a buying stage phase 1 I would much rather be a little early in identifying this market, then way too late.  That is what places like San Diego are currently positioned.  This is the beginning of a stage 2 selling phase. 

    Swanny

  • Somers, CT · Member since 2015 · 5 posts · 1 vote
    10y

    @Michael Swan

    Did you fly out to Ohio to look at and buy all these properties or did you visit once and then did it over the phone via a management company?

  • Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    10y

    Hi Christopher,

    I am pretty hand on right now. My single family property manager their in Ohio is growing with us and managing my apartment complexes too. Brokers I have created connections with are now sending me pocket listings and my property manager scouts the property for me and then I negotiate an LOI and Purchase Sale agreement with the my Attorney's help. My attorney takes over and protects me from there. I then do the financial due diligence from afar and then I travel to the property to do the property inspection with my property inspector and my property manager. If we find anything dramatically out of order with financial and physical due diligence, we renegotiate or walk away from the deal. It is soooooo, exciting!!!!

    Swanny

  • Realtor/Investor · San Diego, CA · Member since 2015 · 133 posts · 73 votes
    10y

    just closed a sale 2 months ago with zero down and the person had a 630. Have another in escrow 22 year old 2 months of verifiable income with a 632 score. SS increasing again. Keeping my eyes open

  • South Bend, IN · Member since 2015 · 180 posts · 93 votes
    10y
    Thanks for sharing this amazing story Michael. It is truly inspiring for those of us who are just starting out!
  • Jerry AgbonPro Member
    Raleigh, NC · Member since 2015 · 60 posts · 19 votes
    10y

    Great testimony! One that would inspire and encourage others. Thanks for sharing! 

  • Medina, OH · Member since 2015 · 2 posts · 0 votes
    10y

    great points! As a clevelander I can say yes this market is growing and the vibe is definitely here. Heck a crappy hotel 40 miles from town is going for $400 a night during the republican convention. 

    I'm new and looking to get my first rental. Going to a section 8 landlord meeting this weekend. Any advice on questions to ask? Thanks!

    David 

  • Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    10y

    Right now trying to stay away from section 8.  CMHA is horrible.  They owe me approximately $2,000.00

  • Rosenberg, TX · Member since 2014 · 25 posts · 6 votes
    10y

    @Michael Swan, Here is a question asked earlier that I'm interested in as well:

    Something that I was wondering though, maybe I missed it. How much did you start off with? I saw you said you put $6000/year away and you put about $25-30k down each time. How much did you buy in your first year? After that I'm guessing you refi cashed out and used that plus cash flow to purchase the other properties the next couple years or did you go straight to 1031's?

  • Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    10y

    Hi Justin,

    Those were two separate issues. I was talking about how the IRA and 401K path to financial independence is flawed. There was a period of 10 years where I put away $6,000.00 a year into my tax deferred IRA and after 10 years the balance was the same as I started with 10 years before. Of course, I am pretty old (50 years old) and had been contributing all along since I was 25 years old. I liquidated everything and refinanced my personal residence and pooled my money together with my parents to accumulate those original condos in San Diego over a 3 year period. So yes we were all in with my parents on down payments about $400,000.00 seed money in those 3 years. Then at the end of 2014 and the first 6 months of 2015, started to use most of our cash reserves to invest in single family in Euclid Ohio. That was about $250,000 all in and cash purchases and rehab for those 8 single family. Then at the same time was getting educated on the 1031 exchange and exchanged our first pricey condo in San Diego for a 10 unit complex in Cleveland Heights, Ohio. Then, we sold another pricey condo and 1031 exchanged it in for a 15 unit in Painesville, OH. Last, we 1031n exchanged another condo for an 8 unit in Shaker Heights, OH. Now we are trading in another condo for a 12 unit in Euclid Ohio. We also did a straight sale on a condo we only owned for about 18 months to increase our reserves.

    The map is there for everyone to follow.  Keep trading up, until you have two or three large complexes.  That way we go from our current 46 front doors and soon to be 57 or 58 front doors and 1031 exchange 4 or 5 more condos this upcoming summer and buy 4 more apartment complexes and have about 90-100 front doors minimum.  Two or three years after that have about 200 front doors. Two or three years later 400 front doors. Three years later, 800 front doors.

    Ultimately the goal is to have $50,000,000.00 in property value and $16,000,000.00 in net worth and $1,000,000.00 in yearly, tax deferred cash flow.

    This will not be easy.  Imagine if a lowly paid teacher with combined family taxable income of $80,000.00 living in pricey San Diego could make tax deferred even half this amount.

    Again, what a country!!  AMERICA!!!

    Swanny

  • Investor · Madison, WI · Member since 2015 · 44 posts · 31 votes
    10y

    Thank you Swanny for responding to so many posts! I've read the whole entire conversation. I am in LA and looking to buy my first investment property soon. Like you, I caught the RE bug and have read several of the books you listed. Since my timing in So Cal is a few years behind yours, I'm exploring out of state cash flow property to start. When the downturn eventually hits here again, I hope to be well prepared to snap up some properties. 

    One thing I hadn't yet explored was the cost of cashing in my Roth and traditional IRAs, which are worth $200,000 together. After reading your story, I'm thinking that money is definitely in the wrong place!

    My final thought is that you should definitely contact BP about doing a podcast. Your story is very inspiring to us all, and I would eagerly listen to find out what you haven't already shared here! Thanks!!

  • Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    10y

    Hi Vanessa,

    I don't know about the podcast.  Joe Fairless contacted me to be on his podcast and I dropped the ball there.  As a teacher, I have the ability to break down, seemingly complex concepts into understandable units.  Right now, I feel I am at a very low stage of expansion.  Maybe, after I sell all the rest of my pricey condos this summer and completely stabilize the current apartments complexes I have purchased in 2015, I will be able to see the forest to through the trees.  The short term goal, by Jan or Feb is about $10,000 tax deferred cash flow per month. Then, Jan or Feb of 2018 we expect to be up to approximately $20,000 in tax deferred cash flow per month.

    I need to achieve these midterm goals and then  I may feel my story would be worthy to share at a bigger pockets podcast or Joe Fairless podcast etc...  I have detailed goals and am still trying to achieve my short term goals of $10,000-$12,000 cash flow per month.  Right now we are at $8,000.00 per month.  That isn't really exciting yet.  Although, I see the light at the end of the tunnel.

    Thank you again to all that have read my posts here.  I truly believe by me writing my thoughts and ambitions here, it will help me to achieve my goals and then some.

    We are only limited by the size of our dreams!!!  Dream big and dream bold my friends!!!!

    Swanny

  • Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    10y

    Hi Vanessa,

    Your idea about the IRA is correct. You only withdraw about 30% more than the downpayment for the rental property you are financing. That way you pay the taxes and penalty. Personally, if I were you, with what I know now, I would get an apartment complex with that kind of downpayment money. If you put $130,000.00 down, you could purchase an apartment complex valued at $520,000. Right now, I am purchasing a 12 unit, that will cash flow at about $25,000 a year. The downpayment will be about $150,000. That will be about 30% down and is 1031 exchange money. The purchase price will be $485,000.00. The beauty of my situation is we only put down $17,000 each on the original condo. We have experienced 3 years straight of tax deferred cash flow ($20,000), plus $155,000 in appreciation ($120,000 purchase price in 2012). That is $175,000 tax deferred return on a $34,000 original investment. Soooooo, in a little over 3 years, we have had about a 500% return.

    The stock market (speculation) and your IRA can't do that. If it did, just imagine the taxes you would pay if you cashed it in. Cash flow way more than my W2 earnings is my strategy. That is true financial freedom. I don't want a big bucket of cash when I retire from teaching. I want massive tax deferred cash flow for the rest of my life in retirement.

    Off to Vegas now for a few nights.  That is the only speculation and gambling that I will be doing in the future.  I will be at the Golden Nugget.  Living the dream.

    How about you? If you had to choose, would you want $2,000,000 in the bank or $500,000 to $1,000,000 in tax deferred cash flow per year for the rest of your life. I choose the latter. The first choice is my old map which was scrimp and save (speculate) in IRA etc... That was the wrong map. I am afraid that millions upon millions of people are following this map and when the next stock market collapse occurs, they will be in a world of trouble. If they are 5 to 10 years away from retirement, it won't be pretty.

    Are you in that category?  I fear you won't have a shovel big enough to get you out!!!  Let me know your thoughts.  Read Second Chance by Robert Kiyosaki's.  It is coming.

    Swanny

  • St Petersburg, FL · Member since 2014 · 65 posts · 22 votes
    10y

    You are an incredible inspiration.  I was already really inspired to do my first deal but you have totally increased my goals and aspirations!  Thank you for your story!  I just took a second job so I can start to save for my first down payment.  Thank you again and congrats on all your amazing success!

  • Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    10y

    Hi Bianca,

    I had an IRA. If I would have had a 401k, yes I would have done as you suggested. I advise people that have a 401k to make sure they only match their employers contribution if they are going to keep their 401k. The amount they were investing above and beyond this match before would now go to their real estate investing account.

    Swanny

  • Licensed Real Estate Broker & Investor · Houston, TX · Member since 2012 · 521 posts · 104 votes
    10y

    Finally made it to the end of this post.

    Wishing you much continued success, Swanny!! @Michael Swan

  • Accountant/RE Investor · Saipan, MP · Member since 2014 · 11 posts · 1 vote
    10y

    Congrats @Michael Swan! Your hardwork paid off. Cheers!

  • Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    10y

    Thank you Lyle and Charlie.  The best of luck to you in 2016!!  Remember, luck is when opportunity meets preparation.

    Swanny

  • Rental Property Investor · Austin, TX · Member since 2015 · 27 posts · 7 votes
    10y
    Originally posted by @Michael Swan:

    Thank you Lyle and Charlie.  The best of luck to you in 2016!!  Remember, luck is when opportunity meets preparation.

    Swanny

     Just read this whole thread and will again, a few more times! 

    Michael, at the beginning you mentioned about the likely bubble due to no $ down mortgages. I remembered seeing this earlier this month,

    http://www.zerohedge.com/news/2015-12-05/bankrupt-...

    If this gets legs, it will be a bubble machine!

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