4 Units in 7 Months – How I Got Started as a Rental Property Owner

Moving in with my Mom at age 27 was a humbling experience. I am thankful to have a caring mother, but my younger-self didn’t see my future-self having to move back in with my Mom. I thought I would be further along than this..

Rewind 5 years, I had just graduated from college with over $60,000 in student debt and I was determined to go out and make it on my own. After an extensive job hunt and several failed interviews, I was offered an accounting job at a Casino in Toledo, OH, which I accepted and promptly moved into an apartment where I would be responsible for 100% of the costs.

During my time living in Toledo, I was served two eviction notices (I was late but paid up) and ran my bank account on a single digit bi-weekly. Turns out $12 an hour barely affords you low income housing. Those student debt loans weren’t helping me. I was getting nowhere financially. I got a different job working for a bank and moved to Kalamazoo, MI. After a little over 3 years working at the bank, I learned a lot about myself, my goals and money. While working at the bank, I learned about the inner-workings of how businesses ran their day-today operations and how the keep track of their finances. I saw how people from all walks of life and socio-economic status manage their time and money. I started to realize how far away retirement was for me, and after running several different financial planning scenarios for myself, I became discouraged about the path I was headed on.

One day at the bank, I was helping a woman setup a business account. Her name was Lorraine and she was from Australia. Her and her husband moved from Australia to the US. She began to roll out their story and explained that they decided to become Real Estate investors. The business accounts I was setting up were for their rental properties and house flips. I became very curious and asked, “How did you guys get involved with this?”. Lorraine quickly replied, “Have you heard of BiggerPockets?” This conversation served as a catalyst for not only my journey as a real estate investor, but to change my approach to life.

I liked working at the bank, but I wasn’t making the money that I wanted to. In addition, the cost of living, student debt and a car loan made it difficult for me to get ahead. I wasn’t poor, but I was stagnant. Not making progress made me depressed. I wanted a change. After submitting a transfer request, I took a job at the same bank, but relocated to a branch closer to my hometown. I explained my plan to my Mom and she offered to let me live at her house until I saved some money to move out. My first thought was how embarrassing this would be for me. I’m on the back end of my twenties and I’m moving in with my Mom. It was discouraging. I felt like I was taking a step backwards, and I was letting social conditioning get me down. Many of my peers seemed to be doing much better than me according to the standards and normalcies of society. Everyone my age was getting married, having kids or buying a quarter million-dollar house. Not me. I thought I was doing it wrong. One day while cruising the BiggerPockets forums, I stumbled across a listicle of books to read for RE Investors. The first recommendation was the famous purple book, “Rich Dad, Poor Dad” by Robert Kiyosaki.

After that I was hooked. I refer to that book as the “Bible” now. It not only gave me motivation to learn more about real estate, but it reassured a few things and re-framed my approach to life. Like many others before me, this book changed the way I looked at my lifestyle and what’s important. This was the turning point for me. I spent a lot of time in the 200 sqft apartment above my Mom’s garage educating myself about rental properties and how to buy real estate. I was able to save a lot of money while living in there. I paid off my car and a large portion of my student loans to get my DTI (debt-to-income) down. I finally felt like I was making progress by learning about real estate and improving my financial picture.

I really wanted to dive in and get my first deal under my belt. Since I spent a lot of cash paying down my car loan and a large portion of my student debt, I was cash poor and didn’t have any funds for a down payment. But then I remembered I had an IRA that I was making healthy contributions to while I was working at the bank. After three years of employment I could withdraw without having to payback my employer’s match, which was a very generous match. I calculated the tax hit I would have to pay if I were to fully liquidate my IRA, and after taxes I would walk away with a little above $10,000. Once I liquidated my IRA, I got on the phone with my Mom’s realtor, Stefanie, to start looking at houses.

This was all new to me and I think Stefanie was about ready to pull her hair out. We looked at over 15 houses and made two offers only to back out after both inspections failed. Finally, I decided on moving forward with an 800 sqft 2 bed 1 bath for $27,000. I had to put $5,400 for the down payment plus closing costs, and I was able to put $3,500 to get it rent ready. The rehab took us about a month and half to complete as this was our first go around at rehabbing and we were doing all the work. It didn’t take long to fill this unit as we found qualified tenants shortly after completing the rehab work. This unit’s net cash flow profit was $350 per month. I was thrilled! It worked! A small win, but a win nonetheless.

A couple months later, I acquired my second property, which was a much smoother process. It was a turn key, newly renovated SFR that I thought could achieve the same net profit figure of $350 per month. The house was listed at $45,000 and my offer of $39,000 got accepted. I had that unit rented within 25 days from closing and this unit was cash flowing at a NET profit of $375 per month.

The hardest part during this entire journey was saving money to invest in real estate. I had to find ways to mitigate monthly and daily expenses so I could allocate my income to real estate acquisitions. Adopting a minimalist lifestyle and focusing on saving money helped me greatly. I asked myself, “How can I continue this?” I couldn’t live in the apartment above my Mom’s garage forever. I’m sure my mother would love that actually, but I wanted to have a little more space for myself. The apartment was only 200 square feet, and did I mention I was sharing it with my brother? We had to walk down through the garage to take a shower or go to the bathroom. Secretly I didn’t mind it because of all the money I was saving, but I knew this lifestyle wasn’t sustainable. That’s when I started reading about house hacking on BiggerPockets. My brother and I started to make a game plan to look for small multifamily houses.

Small multi-family housing is scarce in my market. St. Clair County, MI doesn’t have a mass amount 2-4 unit homes like other markets in the United States. We were targeting houses with multiple units as our plan was to acquire the property, house hack and eventually move out, but we would fill the vacated unit with a tenant. The most important thing we wanted to accomplish was a profitable exit strategy. At the time, we were having a hard time finding any 2-4 units, and our budget was pretty tight. My brother found an up-down duplex in a nice neighborhood that had the top unit vacant. This was our opportunity to move out and acquire our first house hack deal!

We decided to use the FHA type loan that only required a 3.5% down payment on the $98,000 purchase price. Our mortgage payment worked out to be $989 and the lower unit was already rented out at $760 a month. My brother and I agreed to split the remaining mortgage bill and utilities, which meant I was personally responsible for roughly $125-$150 per month depending on the utilities bill totals. Even though the entire payment wasn’t covered, this was still a great deal for us because the payment was so low. If the unit below us became vacant, we could still afford to split the mortgage payment. Buying this duplex allowed us to maintain a low cost of living and remain in the area where our jobs were. Our primary exit strategy was to move-out in a few years so we could achieve a positive cash flowing property. We figured we could get $760 for the bottom unit, and $650 in the top unit for a total of $1,410 per month in revenue. Fast forward to present day, we are getting $760 in the bottom unit and $675 in the top unit. Factoring in $155 expense per month for water and trash that we pay, we are netting a little over $290 per month. Not a “grand slam” so to speak from a cash flow perspective, but this duplex is in a developing area, and it has already appreciated to $130,000 based on recent comps. This duplex helped both my brother and I mitigate the cost of living, and it will certainly pay-off in the long run once we sell it.

Looking back on it I don’t think I would do anything different. Everything came together fairly quickly (approximately 7 months). It’s very important to learn your market and to get good at analyzing deals. As a novice investor, I made time to analyze deals before buying my first few properties. There was certainly some risk, but thankfully everything has gone according to plan. Lastly, the entire experience demonstrated the power of house hacking. My brother and I are living in our second house hack, and we continue to buy rental properties because we are able to safely afford it. If you’re a newbie investor looking to get in the game, I would strongly recommend trying your had at house hacking first. It’s a great strategy for beginner investors.