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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  • Mike T.Pro Member
    Investor · Tampa, FL · Member since 2012 · 94 posts · 26 votes
    10y

    Thanks for posting.  Makes me want to go run through that brick wall today!

  • Rental Property Investor · Arlington, VA · Member since 2015 · 160 posts · 53 votes
    10y

    The 10X rule never looked better then this haha. Congrats @Michael Swan

  • Investor · Placerville, CA · Member since 2015 · 48 posts · 11 votes
    10y

    Amazing post.  Thank you so much!  I'm currently reading "how I turned 1000 into a million in RE" by William Nickerson and between this post and that book I know that to be a great path.  He is all about trading up.

    Thanks again.

    Scott

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

    Mike, Sam, and Scott,

    I am glad that I have sparked a burning desire within you. Now, follow my lead and always do deals based on 1. Never lose money. 2. It must cash flow. 3. You can't get financially free slowly, like 401k or IRA speculating and trying to reach some imaginary date in the future to retire and hope you don't outlive your money. With that old plan, we are planning to be poor when we retire. The pundits say we will be in a lower tax bracket when we retire. Sooooooooo, the plan is to be poor and make less in retirement. I don't like that plan.

    Do you?

    Swanny

  • Rental Property Investor · Oakalla, TX · Member since 2015 · 67 posts · 24 votes
    10y

    interesting information about the 401k plan.  I've been maxing out (for the most part) since day one. 

  • easton, PA · Member since 2015 · 45 posts · 19 votes
    10y

    Hey Swanny,

    I've just finished reading your entire thread and I am so grateful to have stumbled upon this knowledge.

    I work as a Social Worker in a hospital in Atlantic City; not sure if you are aware of our economy here, but we are one of the most depressed counties in the United States. The casino industry is collapsing (in AC) and many people are out of work. As a Social Worker, I have heard mulitple horror stories from our patients seeking help. So many young people moved to Atlantic City in the 1970's when the industry is booming and created their careers here. Now that the casinos are closing, these people who are in their fifties-sixties now are laid off and have, at this point, exhausted their unemployment and have no where to turn. They are too old to easily find a job and too young to collect social security. These hard working people are floundering and finding themselves, living with their kids, or shockingly, homless. I see situations like this every day.

    If these people had known to invest their money in real estate and create passive cash flow, they would theoretically be able to support themselves if they lose their W-2. Seeing the economy collapse here has changed my entire outlook on the traditional work force, or "the rat race." Reading your post cements my new thought process.

    My husband and I purchased our first two properties about 8 months ago. One Single Family that is cash flowing about $350/month and a Duplex, in which we reside. Total monthly expenses for the duplex are about $1,800. We rent the upstairs apartment for $1,050. So we live (1 block from the beach in a Jersey Shore beach town) for $750/month. Not too shabby, but not great either.

    My husband is graduating with his Master's Degree this May and we will be re-locating to where-ever he can find the best job. We are already considering what our next move will be in regards to real-estate. We preferably would like to buy another multiplex and live within but without bills and still cash flow. Learning about the 1031 option in your thread may be the way to do this if we cash in on the equity from the two properties we own now.

    Swanny, thank you so much for sharing your wisdom. I apologize for the long winded post, I suppose it was more therapeutic for me to write and process all of my thoughts.

    All the best!

    Beth

  • Investor · Newberg, OR · Member since 2016 · 90 posts · 19 votes
    10y

    Swanny, 

    Amazing story! Thanks for the inspiration.

    Evan

  • Rental Property Investor · Washington/Texas · Member since 2016 · 104 posts · 12 votes
    10y

    michael.swann , truly inspiring! How do you find apartment complexes in Ohio? Also what factors go into you choosing a property?

    Also isn't there a risk of rents going down with downturn in economy which might affect the cash flows of existing property. What's ur exit strategy in such a scenario where it will be harder to sell without incurring a loss

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

    Hi Prasad,

    It took me a lot of reaching out to property managers, lenders, and brokers. Building contacts and connections takes some time. The rent lowering thing is not a worry to me. I buy the complexes based on increasing NOI. When you buy at the right price and focus on providing the best product and the best service, it is a no brainer. Besides, I traded in $5,000.00 cash flow for $15,000-$20,000, every time I purchase an apartment complex. Even if my cash flow goes down 50%, I still have more cash flow than the property I traded it in for.

    Swanny

  • Investor · San Diego, CA · Member since 2016 · 5 posts · 1 vote
    9y

    What a wonderful story and a remarkable success! 

    Thank you for sharing!

  • Investor · Commack, NY · Member since 2014 · 43 posts · 7 votes
    9y

    Hi Michael,

    Great success story, i'm just curious how you picked the area in Ohio to invest in giving your from San Diego. Do you have any issues being so far from your investments. I would also like to start investing in small multi families  but i live in NY and they are unaffordable.

    Thanks!

  • Investor · Westwood, MA · Member since 2015 · 6 posts · 11 votes
    9y

    Congrats on your success sir! That is an awesome and inspiring story. You are where I want to be in the future. Thanks for sharing!

  • Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    9y

    Hi @Account Closed

    I had a colleague that her mom an step dad had a small PM based in Mentor Ohio.  I made connections and used that small little mom and pop management company for all my properties there.

    Swanny

  • Investor · Commack, NY · Member since 2014 · 43 posts · 7 votes
    9y

    Thanks Swanny !

    I also got your message yesterday but couldn't call, i was with the kids all day. I appreciate all your insight and would still like to discuss in more detail one day. Have a great day !

    Andrew

  • Saint Paul, MN · Member since 2016 · 10 posts · 12 votes
    9y

    @Michael Swan - Can you explain how all of your cash flow is tax deferred?  I enjoyed reading your story but do not understand how your cash flow is tax deferred, is it a play on words?  Is it tax deferred because the properties depreciation cancels your cash flow?

    Thanks,

    Mark

  • Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    9y

    hi @Mark Otto

    I know it is hard to believe.  Please read Loopholes of Real Estate by Garrett Sutton.  I use properly leveraged debt, tha

  • Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    9y

    @Mark Otto

    that I can right off the leverage.  PM write off and depreciation, cost segregation, etc.. My accountant takes advantage of all the rules afforded by the IRS to allow me to pay little to no taxes and defer my taxes.  A 1031 exchange is tax deferred and everything else that is legal to "on paper" have a loss.

    A good RE tax guy is worth his or her weight in gold.

    Swanny

  • San Diego, CA · Member since 2014 · 20 posts · 2 votes
    9y

    Michael, your story is truly inspiring. Could you please share in accountant contact info here or in a private message?

  • Investor · San Diego, CA · Member since 2015 · 96 posts · 37 votes
    9y

    Yes I would like your accountant's info too please!

  • Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    9y

    Hi all,

    You don't need my RE accountant.  My guy is in Ohio and knows Ohio tax laws and California tax laws too.  Plus, he is a CPA that really knows RE.  The only reason I switched from my local guy here in San Diego is because I outgrew my little tax guy here.  My little tax guy, here in San Diego, about a year ago was not a RE CPA.  He was saying things like, I don't think you can 1031 for a property out of State and other red flags went up that he wasn't really interested in researching Ohio and their tax laws etc...  My RE Attorney is also in Ohio. You should really find both in the state where most of your investments reside.

    Swanny

  • Richmond, IN · Member since 2017 · 21 posts · 1 vote
    9y

    As a fellow teacher I'm excited that I have started a similar process.  Not in California but a similar process.  I know that teaching will never make me financially set for life.  Thanks for the great story and inspiration.  

  • Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    9y

    Your Welcome @Curtis Deckard,

    You can do it!!

    Swanny

  • Investor · in, MI · Member since 2013 · 226 posts · 102 votes
    9y
    Originally posted by @Michael Swan:

    Erik you need a better tax guy!! I have loans on all these properties and write off everything allowed. HOA fees, interest on loans, depreciation, mileage, appliances, repairs etc... If you have no debt and don't carry leverage, you are susceptible to paying significant taxes. I will never pay off another property in my life and always 1031 exchange up or refinance to keep at least 70% debt. That is good debt. Don't listen to Dave Ramsey on leveraged debt for investment properties. He is dead wrong on that point. He is like financial planning for Kindergarten. I have learned this info and this is like getting a masters or doctorate training that I am speaking of.

    Swanny

    Well to be fair, the cash flow is only "tax deferred" if you are holding these properties in an IRA. Any appreciation is of course tax deferred until you sell (avoid by 1031 exchange). Write-offs aren't income, they are expenses.

  • Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    9y

    Hi @Kurt K.,

    After learning all that I have learned, their area only two options.  1. Refinance and take money out tax free. 2.  Use the power of the 1031 exchange and defer, defer, defer, defer, defer, defer, until I have over 1,000 front doors.  Then die and my kid get it all at a stepped up basis and if he chooses, can continue the plan, until he has 5,000-10,000 front doors deferring until he dies.

    Swanny

  • Investor · in, MI · Member since 2013 · 226 posts · 102 votes
    9y
    Originally posted by @Michael Swan:

    Hi @Kurt K.,

    After learning all that I have learned, their area only two options.  1. Refinance and take money out tax free. 2.  Use the power of the 1031 exchange and defer, defer, defer, defer, defer, defer, until I have over 1,000 front doors.  Then die and my kid get it all at a stepped up basis and if he chooses, can continue the plan, until he has 5,000-10,000 front doors deferring until he dies.

    Swanny

    Yes, in either case (refinance or 1031) that isn't the "cash flow" being tax deferred. But you are correct that equity can be accessed tax deferred or rolled over tax deferred. 

    I think that's where the confusion was earlier with the other person.

    Cash flow is your monthly income after everything is paid and set aside for reserves, if needed.

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