When I first started investing in real estate I had a plan. I was going to rehab and sell one house, then take those profits and use them to buy two rentals. That was my plan. Then I was going to repeat the process again and again. On the surface it seemed like a good plan, but in reality it had one major flaw.
I was a total newbie that didn’t know anything about wholesaling properties. I didn’t realize it at the time, but I was paying too much for those initial properties. They were sure a lot less than retail, but nowhere near being what I now know is a good deal.
Lesson #1. Understand what a good deal is before you make your first offer.
How We Got Started
I had met a Realtor that soon became a friend. She told me about this wonderful group she belonged to which turned out to be our local REIA. I went to a couple of meetings and was hooked. That was way back in 1998.
I assumed that this experienced real estate professional understood real estate investing. After all, she was the one that introduced me to it. She was kind hearted, was very good at being a Realtor, but in reality didn’t understand much about real estate investing. Most of all, she didn’t have a clue about what constituted a good deal for an investor.
It took me a little while to figure this out, but I eventually did. I managed to sell my first couple of rehabs, but I sold them for considerably less than I would have wanted to. Looking back, it’s really a miracle that I didn’t lose money but I didn’t. The rentals that I had bought would turn out to be a real problem when the market tanked a few years ago. I had bought them at a discount, but not nearly cheap enough. Heck, one was even given to me. What could go wrong there? I will tell you. It was 100% financed. So when I wanted to sell them, I soon discovered that I was upside down in the houses.
Lesson #2. Only work with Realtors that are investors themselves. That’s my rule now. Some folks might argue that anyone that works with investors is OK, but I beg to differ. Most of them simply don’t understand what constitutes a good deal. This is deadly for a newbie.
Get a Plan
In my other business, I used to work with the managing broker of a large multi office real estate office in my area named George. He once told me about his real estate investing plan for his retirement which was roughly 20 years away at that time.
George said that his plan was to buy 4 rental houses a year. He had 20 year mortgages on all of them and at that time, he was able to buy them with no more than 10% down and get a good mortgage rate. All of the houses were bought at great prices, had 3 bedrooms and were in good solid middle class neighborhoods.
On the year that the homes “turned 5?, he sold three of them and put the proceeds toward paying off the 4th. He did this over and over. So that in 20 years when he planned to retire, he had a bunch of houses that were paid off, and a few that were close if not completely paid off. His plan then was to keep the best 10 or 15 and sell the rest. Those remaining houses were going to be his passive income for his retirement. I thought that was a good solid plan then, and it is still a good plan today.
Another Plan; 10 Free and Clear Houses to Freedom
I recently learned about a gal that has a different plan, but no less an excellent plan. She decided to make some big sacrifices in her life, save 50% of her W2 income, and use the other 50% to buy property.
In her area which is in Georgia, she is able to buy houses in good blue collar neighborhoods for about 10k each at this time. She says she has to put roughly another 10K into the houses for fix up costs. Before you even ask the question, I will tell you that she has found a contractor that is really good and really reasonable. These houses are in a rental area, will be worth 50-60K when repaired, and will rent for $650 to $750 per month in her city. She has factored in other costs such as vacancies, repairs, management costs etc. into her formula.
She is buying the houses with her own money, and is either making the repairs with her own money or private money. Once it is a free and clear house, she starts over again. Her formula for her life is, “10 free and clear houses to freedom”. I think it is absolutely awesome that she has a plan and has made a firm decision to see it through.
What is your freedom plan?
There are as many different plans out there as there are different people. The important thing here is that you must have a plan to get where you want to be. Some folks will keep their job while investing in real estate. Other folks have the dream of leaving the “9 to 5” in the rear view mirror.