Purchasing My First Real Estate Investment Property
When I purchased my first real estate investment property at age 21, my friends and family were all a little surprised. However, no one was more surprised than I. To be honest, I never thought it would actually happen. During high school, I'd read a dozen books about investing in real estate, but it seemed so out of reach. I didn't know anyone who actually did it in real life. It seemed very idyllic; very much just a fantasy. A scheme to get rich that probably didn't actually work in the real world.
Never the less, it happened, I successfully made that first purchase. It really worked out, too! I bought a full occupied triplex and immediately started seeing positive cash flow from the property. After one initial situation, our tenants have been easy and undemanding. We rarely hear from them apart from when they submit their rent payments each month.
In today's blog post, I'm sharing a bit about how this came about because this is the sort of article that I would have loved to get my hands on before I made that first purchase. In fact, even today I still find investing stories very interesting and full of wisdom and ideas that I can apply to future deals I make.
After reading a dozen books about real estate investing strategies, I heard of a friend who was investing in mobile homes. “Investing in what?” you might ask. Mobile homes hardly seem invest-able. After all, they are more a liability than an asset, and their value depreciates each year. How could that be an investment? Well, it turns out that the investment isn't so much the mobile home as it is the loan to purchase the mobile home. It's very similar to banks lending money to people for purchasing new cars. The difference here is that mobile homes aren't quite as risky as cars, since people generally don't drive them across the country, break speed limits, or smash them into things. Still somewhat risky, of course: they can catch fire, get moldy, or even be driven away…. But comparatively, it's a relatively secure consumable to lend money on.
So, that is how we began. It seemed much less scary than investing in “Real” property, because much less money was involved and the terms were much shorter (2 – 10 years, rather than 15 or 30). Investing in mobiles was certainly an interesting experience, and I learned so much about business, record keeping, and, of course, investing. However, the most valuable aspect was simply that it allowed me to “get my feet wet” with something a little less scary and a little less serious than buying real estate.
Fast forward 18 months, and we were invited to attend a few free “Rich Dad” real estate investing “seminars.” They weren't really seminars, more just sales pitches in disguise (and oh, how I hate to be sold to!) but never the less, we did learn a couple things. Even more than those few tips we picked up, it got us excited. We really felt like we could purchase an investment property. After all, they made it seem so easy.
We started looking for a property to purchase, specifically a multifamily home with higher rents and a lower asking price. We tried to find one with “motivated sellers” and that was “the worst house in a decent neighborhood.” While those are certainly good things to look for, it proved more difficult to actually find than the Rich Dad people had made it seem.
After a few months of looking, we decided to hire a Realtor. This turned out to be a great decision, and one that I'd certainly recommend to anyone looking to purchase real estate. That's because, first of all, the buyer doesn't normally pay the Realtor much, if anything at all– so there's really no reason not to take advantage of this “free” service. Secondly, a Realtor can be a tremendous help. Most Realtors use software that can automatically send you new listings that match your preferences whenever they come onto the market. This means that sooner than you could find the listings, even if you looked every day, you get them delivered straight to your inbox. Not only do Realtors help you find just the right property, but they are also a very helpful asset to have when you are ready to make the purchase. A good realtor will write you up offers on houses, help you finalize the sale, and even schedule appointments with the title agency for closing.
Hiring a Realtor was a great choice because it greatly reduced the work on our end. One of the biggest draws of real estate investing is that it creates passive income. Guess what– passive income isn't passive if you have to keep working for it. So, do yourself a favor and hire a Realtor.
In not too long, our Realtor found our triplex for us. It met all our qualifications, was within our budget (just under $200,000), was cash flow positive, and was even fully occupied. We later learned that the seller was actually a “motivated” seller after all, though this didn't really help our purchasing process at all.
One of the most common reasons that people give for not purchasing real estate (whether a home for themselves, or an investment) is that they can't afford it. Either they don't have enough cash for a down payment, or they don't make enough to get a loan. To that, I will say this: when we purchased our triplex, I was self employed (and didn't even have any employees or a “real” business yet). My husband made less than $15/hour at a dead-end job. We had less than $10,000 in the bank. Yet we got the loan and bought the property. How?? We had no debts, we had low living expenses, we had a history as renters, and we had good credit scores. It really didn't take much, but I definitely think being completely debt-free paid a huge roll.
By the way, in case you're wondering, even though the property was fully occupied when we bought it, the bank didn't count any of the property's income towards allowing us to qualify for the loan. Because we'd never been landlords before, federal regulation prohibits them from counting any of that money.
And that's about it for the purchase! 60 days later, we were the proud, surprised owner of a triplex. After the purchase, we did run into a couple of snags right out of the gate. However, within a few months, everything was under control and we've been coasting along ever since.
Want to hear more about our experience after the purchase was complete? Leave a comment below with your questions or requests and I'll be sure to answer them in a future blog post!
Also, do you have any experience purchasing investment properties? I love hearing about and learning from other peoples' experiences. In the comments below, please share the biggest lessons you've learned from your real estate investing experiences.
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