My Journey to Financial Independence: The Story of Property #2 (of 8!)

by | BiggerPockets.com

Well, it’s been a while since I wrote my first article in this series.  My journey to financial independence took eight properties, but my journey hasn’t stopped there. To bring you up to speed, my first property was a 2-bed/2.5-bath townhouse in Florida with a one-car garage and fenced-in yard. It rented immediately (woohoo!) and has had incredible cash-on-cash return, despite a few hiccups here and there. Let me tell you about the adventures of this unit before I talk about my second.

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First Property Lessons Learned

Well, this wasn’t that big of a place, and I’d already inspected/fixed it up a bit. You wouldn’t think you’d need a large repair budget, right? WRONG. Here’s a list of a few things I’ve needed to repair in this unit alone the past two years:

  • AC repair: $175 with some leak.
  • Breaker replacement: $900
  • New thermostat: $135
  • Fence repair: $250—it fell right over!
  • Master bath leak: needed new cartridge; $268 for plumber after a contractor quoted me $1,100 for pipe issues
  • Master bath leak: actually didn’t need a new cartridge; it needed new piping for $1,100. This contractor originally said the pipes were the issue. I hired a plumber for a second opinion and went the cheaper/simpler route and was wrong. I came back, apologized to the contractor, and they did a great job. I’m happier with them overall because they would come back if the issue hadn’t been resolved, whereas the plumber said they’d still charge me to come look at the issue they just tried to fix! Uncool.
  • AC issue again: $140 a year later—seems to be good to go now.
  • Kitchen faucet leak: $30
  • Pest control: $250 for an entire year—this cost is now tenant’s responsibility but no issues since then anyway.

BRRRR-strategy-deal

Related: Forget the American Dream—Renting, Not Homeownership, is the Path to Financial Freedom

Looking at it now, it doesn’t seem TOO bad, but that’s still an average of $1,600/year in repairs alone so far. Luckily (and knock on wood for this one), most of these were in the first year, and it seems everything has settled for now. Oh, did I tell you this property still cash flowed over $300/mo with this large repair budget? Cha-ching.

Getting My Second Property

All those repairs didn’t scare me off somehow. I had the bug and needed to keep looking for more properties. Finally, in December 2015, I found another property nearby in Colorado! Little did I know, this one would be a ride. The Colorado market is HOT (as in, cash-offers-$20K-above-asking-price-for-$500K-houses hot). I found this little 600 square foot condo down the street from me for $80K.  It was a little shabby, meaning there wasn’t much competition for it and my original offer was quickly accepted.

The Cons

  • This is pretty much a studio, although it was advertised as a one-bedroom because of some janky bedroom setup (see last picture with room divider). There was a wall separating the original bedroom area from the rest of the condo, but it had been taken down and you could still see the imprint on the ceiling.
  • This is a garden unit, meaning it’s about half underground.
  • What you can’t see in these photos is the floor coming up because the prior owner self-installed the laminate. Every plank ended at the same length across the floor, which caused it to bow upward. Turns out garden units aren’t good candidates for laminate, so carpet it is!
  • This unit doesn’t have AC. That’s easily fixed with a portable unit, though.
  • HOA quality was OK but not great when I acquired this property. Shortly after, a new management company took over (which is VERY good news, as they’ve been doing amazing things), but our dues went up significantly. It’s a con, but also a pro because the community is on a huge upswing. I calculated extra conservatively since the HOA was a variable.
  • It had some piping problems in the past. This was the HOA’s responsibility, but history repeated itself after a year of ownership. This was a minimal headache, as the HOA put my tenants in a hotel while they (slowly) responded to the leak. This also happened over the holidays, so I’m lucky my tenants were even home to catch it.

The Pros

  • This is in a stellar location. It’s right across the street from public transportation, nearby a major interstate, and right between Boulder and Denver, attracting many renters.
  • HOA dues weren’t out of this world. In this area, condo/townhouse HOA dues below $250/mo are hard to come by. When I purchased this condo, the dues were $180 or so/mo since they calculated it by square foot of the unit. The dues include ground care, water, pool, recreation center with free wifi, gym, playground, BBQ area, and more.
  • I asked for my closing costs to be paid in my offer, and it was accepted.
  • The furnace was maintained by the HOA for this particular property, and the appliances were fairly new.
  • The property came with all the furniture in it, as well as the washer and dryer.
  • This property cash flowed over $500/mo at market rent prices when I first acquired it. This has gone down since the HOA has gone up, but I’m still well into the $400/mo range.
  • My real estate agent said this property could rent for $850/mo—but little did I know after market research I could get over $100/mo more than that.

credit-report-loan

Related: Dave Ramsey is Wrong: You DON’T Need to Be Debt-Free to Hit Financial Freedom

Two Years Later

So far, this property hasn’t been too bad in terms of repairs, although I’m including the remodel in here, too.

  • $4K or so worth of remodel (carpeting, paint, slight demo for layout, updated fixtures, room divider, etc.)
  • $180 for light fixture/bathroom repair
  • Ceiling leak taken care of by the HOA

The property had plenty of interest both times I’ve listed it, and I was able to have consistent, quality tenants placed. It wasn’t too hard a decision to choose to sell it, though. The Denver market has appreciated considerably the past two years. I’m able to pay off real estate-related debt, cut down on my liabilities, and increase my cash flow in the absence of management-related tasks since I self-managed. A week after it was on the market, I had an offer above asking price. I’ve chosen not to pursue a 1031 exchange at this time, but haven’t ruled it out entirely.

Conclusion

So, that’s it! Acquiring this property wasn’t so exciting. It was a little run down and a lot of people overlooked it. I got financing, closed, and had it rented out quickly. It wasn’t very labor intensive, but with the HOA now being near $215 after two assessments, I’m ready to get out. Admittedly, the HOA management is doing a lot of great work for the property, but I no longer need to worry so much about varying HOA dues cutting into my cash flow, filling a condo between tenants, etc. and will cash flow just as much with the capital gains (minus tax) anyway. Same cash flow, less work—at least for now.

How do these numbers look compared to the investments in your market? Newbies: What experiences have YOU had with your first few deals?

Be sure to comment below!

About Author

Sarah P.

Sarah has achieved Financial Independence as a result of her real estate investing. She has a great time blogging about her personal experiences throughout the process. Currently she’s enjoying the ride, but is open to working remotely now and is looking for positions that are exciting and challenging.

21 Comments

  1. Chris Ayers

    It seems like you’re achieving around $400 a month per home. So if you’re financially free with 8 homes, then around 3K a month covers everything for you?

    I ask because my goal is around 10K per month to be financially free and I’m wondering if mine is too high or yours is too low. Cool picture by the way 🙂

    • Sarah P.

      Yes, 3K covers more than enough for me but with this one my average was $430/property so it was a bit higher than that. Keep in mind one’s a duplex and one I paid for with my HELOC and have used the cash flow from these properties to pay off since then. That includes mortgage and other bills like utilities, car insurance, health insurance, etc. If you like traveling, Travelzoo is an awesome way to go on a budget. And thank you- this was *before* I threw up. 😀

    • Sarah P.

      Oh- and as for being FI, I found my freedom number by assessing and tracking all my expenses month to month. For me, being FI was more important than my awesomely expensive habit of eating meals outside the home. I cut down big time on frivolous spending and was able to make my FI goal more attainable. Since we’re talking specifics, do you spend 10K a month or is that just your target income?

      • Chris Ayers

        It is my target income because that’s close to my current take home now from my 9-5. Now I don’t spend all of it, but the extras are used for buying more homes. If I wanted to strip down all the luxury things in my life I could easily cut it down, but I like my job and luxury items are nice from time to time.

        • Sarah P.

          That’s definitely what I’m striving for. I’ve replaced my annual expenses with my target savings rate on top of that (with what I consider luxury items since I enjoy traveling), but I want to continue building that so I don’t need to worry if the market corrects or if I have a significant expense for some reason.

        • Lacey S.

          Your current salary isn’t necessarily a great goal if you are not spending it all. You should look at what you actually spend (luxuries included!), I use mint.com to track my spending and have been doing so for the last 3 years to get an idea of what I really need, what is savings and what is “extras.” Just a suggestion – you will like your job even more if it’s optional 🙂

        • Chris Ayers

          I’ve been using mint for a long time now. My salary now is a comfort point that covers expenses and extras. Those one time events do come up from time to time (car breaks down, water heater breaks, etc…)

    • Sarah P.

      You are correct! I’ve told them I’m considering it and I have until the closing date to decide if I want to do it. If I don’t identify a property within the first 45 day requirement, I can get that back. If I identify something and don’t go through with it, I will have to wait six months before getting my money back. BUT I also learned you can roll your capital gains/initial investment into THREE properties. Technically you can do more than that but need special permissions. So if you sell a 200K home, you can find another market where you can buy two 100K places if you wanted to increase your cash flow.

  2. Megan Greathouse

    Thanks for posting these! I’m working toward the same path right now, and will be closing on my first multi-family property this month. Cash flows in my area seem to be down in the $100 – $200 range per door (partially because I won’t be self managing, at least at first), but on a four unit property at less than $150K, it’s still a pretty solid return. How many of your properties are out of state? Did you invest in any states you hadn’t lived in yourself before?

    • Sarah P.

      That per door sounds really good! 150K for a four plex with 400-800 cash flow sounds like a really good cash on cash return if you’re putting 25% in.

      Six of my properties are out of state, actually. The Colorado market is VERY crazy right now and most places don’t cash flow well anymore in my immediate area at least. That, and I don’t have the ability to drop cash offers. 🙂 I haven’t invested in states I don’t live in, but in Michigan I invested in an area I’d been to, but not lived in.

    • Sarah P.

      In terms of percentages, etc. I’m not really sure. When I bought this place I looked at what they had in reserves, checked insurance and bylaws, and sought advice from this site for various other things to look for with their financial situation. I also saw something was broken and reported it to the HOA, which got back to me right away and it was fixed the next time I visited the property the next week. What I couldn’t predict was that the prior management company had delayed a good bit of maintenance (according to the new company) and resulted in two assessments. That being said, the property even after the assessments has always cash flowed nicely so with preparing for the unknown, I hedge my bets by estimating cash flow very conservatively.

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