There are a whole host of blogs devoted to the concept of early retirement. This term is sort of a misnomer, however, because of all the people I know who have “retired early,” 100% of them are still actively earning income in some way or another. The term I prefer is “financial independence”–having enough money that you don’t HAVE to work a traditional job any longer.
Many of the bloggers I know started off as computer programmers, making obscene amounts of money, living off a fraction of their income, and saving and investing aggressively. That all sounds great, but not everyone makes $120,000 a year.
So if you make a smaller salary, can you still achieve financial independence?
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
The Beginning of My Real Estate Love Affair
I bought my first property when I was 26, making $24,000 a year. (Hey, it was a long time ago…) The year before, I had taken over a friend’s lease and discovered I hated paying rent. So when the lease was up, I moved back home to save up a few dollars and bought a condo for $49,900. (It was a really long time ago.)
I thought I was some amazing bargaineer, getting a 7% rate on my mortgage. (Are you getting some sense of exactly how long ago this was?) So I moved into my 2-bedroom condo, and my brother shared it with me so he could go to school nearby. I didn’t charge him rent because I knew nothing about house-hacking and my parents would have been the ones paying it anyway, and I had just moved out of their house after 26 years of free room and board, so I figured it was a wash.
I owned that condo for four years, selling it when I got married because my husband had his own house. I sold it for $74,800, and I was on top of the world. I paid off all my debts, and life was good. And I was hooked on real estate investing.
I did almost nothing to that condo. I painted all the walls and installed new ceramic tile in the kitchen. New paint and a new floor really did a lot for the place. It really is true that fresh paint makes a room pop. And I made the same money through that sale that I made working at my job for the entire year.
The Love Continues
Once I got married, I moved into my husband’s house. It had actually been his grandparents’ house, and he sort of inherited it. They passed away, and he moved into it to take care of it. We purchased it from the estate.
Turns out, Grandma loved pink. L-O-V-E-D pink. The whole house looked like it had been hosed down in Pepto-Bismol. Pink walls, pink carpet, pink couch. You know what covers up pink walls? White paint. Pink carpet is easily removed and replaced with beige. People will drive by your house and take that pink couch with the free sign on it.
So we spruced it up and kept it after moving to the big city, renting it out two separate times before deciding to get rid of it altogether. (Should have kept it. It sat on a HUGE lot very near the big city, which is unheard of in that area of the world. Sigh.)
Renting was an interesting experience. We advertised in the newspapers a few times and got lots of responses. (Again, really long time ago, before Craigslist…)
“I would like to run a daycare out of this house.” Um, no. Seriously?!?
“I have three large dogs, can you put up a fence?” I think you missed the part about no pets.
“I can’t afford the last month’s rent or deposit right now.” As she drove up in an $80,000 SUV with her bodybuilder boyfriend in tow.
“My husband ruined my credit.” I would love to believe you, but I just don’t.
I’m really surprised we did so well during our landlord experience. This was a really long time ago. BiggerPockets didn’t exist; heck, the internet barely existed. AOL was still sending out CDs in the mail and Amazon.com was running advertisements on the radio. We could read a book about landlording, but it was a whole different ballgame back then.
We did have the presence of mind to perform a background check. That weeded out a lot of the candidates who didn’t say stupid things on the phone when calling about the property.
We finally found two guys who had a summer internship at a large corporation a couple of miles away. They wanted to rent it for three months and paid up front for all three months. They were really nice guys, took good care of the house, and left when they said they would, with the house in the same condition as when they moved in. Score!
We found another guy to come in after the first two moved on. He was a creepy weirdo who paid his rent on time. After a year, we told him we were not renewing his lease because we were going to sell the house, and when he moved out, he left a lot of disgusting things in the house. Eww. But you can buy rubber gloves at the store, so once I picked all that stuff up and bleached the house, all was fine. And someone else paid my rent and then some for 15 months. Score!
We sold that house for $130,000 MORE than we paid for it, which was about five years’ worth of my salary. Hmmm, this real estate thing looks like a really awesome idea.
The First Major Flip
We rolled all this over into the next house, where we learned how to do almost everything we know now. This house was the first place we used natural stone tile and discovered that it goes in just as easily as ceramic. We hung cabinets for the first time too and learned that isn’t such a tough task either. We didn’t walk away with millions from the sale of this house–I think somewhere in the $50,000 profit range –but we did leave with the foundation of our flipping education, which is absolutely priceless.
The First (and Hopefully Last) Flop
Our next house was a major mistake. We bought at almost the height of the market and sold at close to the low. Our profit compared to how much work we put into it amounted to pennies per hour.
I can’t spend too much time talking about this project because it is still too fresh, even though we sold it more than three years ago. We learned so much from it, but at such a heartbreaking cost. There were lots of dark days during this flip. We still haven’t sat down with the actual numbers to figure out what we made. We know we are in the black, but we also know it wasn’t anything close to our projection.
Who could have predicted the market crash of 2008?
We learned more in this house, so it wasn’t all for nothing. But we had just about every kind of problem you could imagine. Bad contractors? Check. Extended time line? Check. Bad weather? Check. Difficult time selling? Check.
Now I know what to look for when I talk to a contractor. I’m not perfect, and I still have hired bad ones. But I know that I can fire them and life will be ok. I know to insist on tarps while the roof is off and they leave for the weekend. I know it will take twice as long as they say it will. I know it will cost more, but I also know more about what costs go into the initial plan so I can make a more accurate guess.
The School of Hard Knocks is a horrible place to learn, but those lessons stick with you for life.
Real estate has helped me become financially independent. I took a lot of time off to raise my children, and now I work because I choose to work.
And I have never loved a job more.
What has your real estate journey looked like so far? What are the most important lessons the School of Hard Knocks has taught you?
Let’s talk in the comments section below.