Getting on base (a celebration and some advice)

[Stephen Lewellis]

The end of the year is a good time to reflect on where you started and where you ended up.

I’m always impressed by the intrepid rookies who are featured as Rookie Rockstars on the Real Estate Rookie podcast. Now I’m feeling just a bit like one of them.

I love Dan Sullivan’s “Gap and Gain” mental model for thinking about personal and professional development. I’ve focused on staying in the Gain this year and now realize I used to have a big problem getting stuck in the Gap. This realization alone was a huge gain.

One of this year’s big gains was overcoming analysis paralysis after years of educating myself about private real estate investing.

The photo shows my initial entry in Brandon Turner’s Intention Journal, dated 1 Jan 2022. I’m not a journal person, but I decided I needed something uncomfortable to hold me accountable.

This led to a cash flowing duplex purchased in our local market in June 2022. This was our first investment property. Wausau, WI certainly won’t appear on any “best rental market” lists, but I wanted my first deal to be local, and I want to contribute to my community. There’s a great story for another time about how I met my rockstar investor agent.

The biggest challenge I faced was stepping through the fear that hit me when I walked the property with my inspector. It’s an old home (1910), and the tenant in the upper unit had recently been evicted. I told myself I wouldn’t impulsively walk away without thinking about it more, re-running the numbers, and reminding myself why I wanted it despite the perceived challenges.

Knowing the property met my investment criteria and that my underwriting was quite conservative to help account for my lack of experience, I changed my mindset from “What could go wrong?” to “What could go right?”. I followed through and got the deal done.

NUMBERS:

Purchase price: $103,500 (off market deal)

Closing costs: $4,409

Financing: 25% down, 6% fixed 30 year note

Appraisal: $117,500

Renovations and deferred maintenance: ~$10,000

PITI: $673/month (tax will likely go up next year; they are relatively high in this market which is one of the downsides)

Vacancy, maintenance, long term cap ex: 15% of monthly income

Management: ~2% of monthly income (self-managing for now with Hemlane, cost is highest for the first unit due to flat annual fee for the software and decreases as properties are added due to nominal fee incurred with each additional unit). I do all of my initial underwriting using 10% to make sure the deal will still cash flow sufficiently when I decide it no longer makes sense to self-manage.

Turnover costs: ~$500/unit/year

Owner paid utilities: ~$50/month

Current monthly income: $1,590 (lower unit rent has been steady since mid 2020, so there is room to grow there)

Projected CoC return: 15.3% (my minimum when analyzing properties is 10%)

Investors often say the first deal is, in many ways, the hardest. As we say in the House of Medicine: See one. Do one. Teach one.

I wasn’t looking for a home run, especially during a historically difficult time to buy real estate. I was just looking to get on base. This property is part of my real estate school of hard knocks tuition. I'm enjoying the ride so far and am grateful to have a steady day job where I get to take care of people and build up savings for reserves and new investments.

I’ve already done my second deal, this time with a partner. That’s a story for another time, but it brought me to >5 doors. The one-year goal I set for myself at the beginning of 2022 was 5 doors, and I thought that was audacious.

The time disparity between the start of my education and my first deal (2.5 years) compared to the time between my first and second deals (5 months) tracks with what I’ve heard from many other investors. This pattern makes a lot of sense.

My advice to other rookies: Educate -> Take action (step into the fear) -> Connect with other investors -> Rinse and repeat.

My 3-year-old son is obsessed with the Tortoise and the Hare right now. What a fabulous real estate investing parable.

Take your time. Don’t compare and despair. Find your tribe. Enjoy the ride. Be good to your tenants/customers.

I’ll end with my Why(s):

- Add a leg to my family’s financial table that isn’t directly proportional to my time spent away from home and/or unable to spend time with the people I love and do the things I love. I especially want to be able to be more spontaneous.

- Hedge against the ever worsening economic and administrative conditions impacting physicians practicing in the U.S.

- Be a role model to my children of financial diversity/independence, thoughtful risk taking, willingness to fail, learn, and fail again, growth mindset, and entrepreneurship. Our daughter was born 10 days before we closed on the first property. Sadly, my eldest brother — the most entrepreneurial and adventurous person in my family — unexpectedly passed away less than a week after closing. I’ll continue to draw inspiration from him as my investing journey progresses.

- Experience the challenges and rewards of owning and operating a small business.

- Participate in areas of the U.S. federal tax code that are considerably more favorable than the ones I’ve been governed by to this point as a W2 employee.

- Network with like-minded investors and learn something new that stimulates a part of my brain that I don’t often use at my day job.

- Make a positive impact on my local community.

Thanks to the BiggerPockets community for the great information and support!

I'd love to hear from any other rookies who have made it over the hump this year. Congrats to everyone on your progress so far.