Welcome to the first part of a mini-series on Real Estate: Realtors, Rentals and Flips
I wrote this post and then shortly after watched someone post on Facebook about the brand new luxury car they purchased and thought to myself that this post seemed just as braggy and not the way I wanted to share our family or our family’s goals. So I stewed about it all day and here’s what I came up with… if it comes across as braggy that is totally not my goal. My goal is to fill you in on our history with real estate and purchasing investment properties so that some of you may get the courage to do the same with your family. Owning and operating investment properties has a two-fold purpose: for now and for the future. Some properties we make a profit from every month; we need these properties now to help supplement the income I was making while I was working full time. Some we just break even; these properties are ones we are holding on to for their future value. Over the next couple of posts I will share the answers to the questions you’ve asked (and feel free to ask more questions in the comments below or by emailing me at firstname.lastname@example.org).
The day I met AJ (on a blind date!) he told me he was meeting with his lawyer about a house he was purchasing. Two things stood out to me: he had a lawyer (that was so grown-up!) and was buying an investment property (wow). As we dated I would stop in over the summer and encourage him with snacks while he was fixing up the house he had been in the process of buying or I would help paint or do other things with him. As we dated he told me more of his vision for investments. At that time he owned his condo and had bought a two family about a year before the house he was working to fix up and rent. He’d done all of this on a teacher’s salary.
Once we got engaged we started talking about fixing up a house to flip. Honestly, I can’t remember how we started talking about this but we saw this one house in Lynn, about forty minutes from us, made a full price offer the day it hit the market and purchased it three days after we were married. The six months after we were married were filled with days of working then driving to Lynn to fix up the house till 10pm then doing it all over again the next day. Not your typical first year of marriage. 🙂 That house was critical for us though. We made a good sized profit that we put straight into the down payment on our home (the one we just sold). We would do a million things differently with this… a lot of those things we changed with the flip we just completed (you can read about that HERE and HERE.)
After purchasing our home in Manchester in February 2010 we sat tight for about a year. When AJ’s grandmother passed away she gave him a portion of her inheritance. Instead of blowing it on fun things we spent $4500 on a truck for AJ, which was a lot more practical than his beloved, and very gassy smelling, 1984 BMW and then put the rest into a 25% down payment on a condo in Gloucester. (For most banks you need to put 25% down on any investment property.) This condo was key for us in two different ways: it had loads of equity in it immediately because it was a foreclosure and it gave us an excellent profit every month (those are the two key things to look for in any income property).
Shortly after that we purchased a house to flip. After working on it for about four months, and doing the math, we realized we’d be better to hold onto this flip and rent it out until the market got even better. I didn’t love when AJ suggested that… but here’s the thing, if we were to sell that flip now we would make about triple what we would have three years ago when we bought it. I’ll go into more details about making that decision in a different post.
Our next purchase was a three family. This property was selling far below market value and we scooped in up when it had been on the market for about 10 minutes thanks to AJ’s relentless prowling of MLS (the multiple listing service available to Realtors and and our clients). We’ve found buildings with three units or more in it to be the best investments as rentals. With this three family we can carry the building if only two of the units are rented. Making sure your numbers work that way can definitely make it less intimidating when you know that not every unit has to be rented to pay your mortgage.
The next purchase was a 15 family, a large Mansard style home that is comprised of typical apartments and studios with shared bathrooms. There are very few buildings like this where we live and because of that rarely have vacancies because the rents are some of the most affordable around. This property was out of our price range when it hit the market and the bank told us to sit tight and wait to purchase something else. AJ could see that this building would eventually be his exit strategy from teaching and started talking with our real estate broker, and AJ’s mentor, about it. Our broker ended up buying the building and over the next year walked AJ through the process of managing such a large project (previously our largest building up until this point was the three-family). Our broker made a lot of updates to the building (like plumbing and electrical work) so after that year he could sell the building to AJ and I as a well-oiled machine. After that mentoring year was over we purchased the building from Peter under fair-market value but high enough that all his improvements were more than paid for. AJ is at this building every day or every other day. Anyone who tells you real estate is passive income is wrong. It certainly is more passive than sitting at a desk for 40 hours a week but AJ is always making repairs, settling tenant disputes, cleaning bathrooms, etc.
You’re probably wondering how we did all this when I was a stay-at-home mom for most of it and AJ was, and still is, a teacher. I’ll give you all the details in the next post! In the meantime, keep your questions coming!