How I Bought 2 Homes in 16 Months making $40k (California)

[Andrew Brown]

I've been a BiggerPockets fan for years, dating back to when the company started as I was fascinated by real estate and wanting to build a legacy / empire that would last decades after I take my last breath. I never imaged, one day my dream would start to become reality...

Brief Background

After graduating from college in 2014, my first job was a full time marketing manager position, earning $10 per hour. Living in a nice suburban city in southern California, I had no choice but to continue to live at home in order to keep my head above water. Due to company mismanagement, I only lasted 4 months, and found myself working part time as a recreation specialist for the next year and a half, until I was given a golden opportunity: marketing manager for a very successful real estate agent in Orange County. I went from having made $9,000 in 2015 to $36,000 in 2016! During that time, my fiance and I got married, and we already had 1 child and another on the way. We moved into our own apartment early 2016 after our wedding paying $1,050 per month (price includes $50 charge for water).

Home ownership in sight?

After being on the job for a few months, I started to have real estate fever! Real Estate in the city I live in is WAYYYYYYY less expensive compared to homes in south Orange County ($300,000 vs $750,0000) just going 30 miles west. I was unsure how much I could qualify so I asked a lender to run my numbers and see what comes out. Unfortunately, she had a pre-approval around $150k and I needed to get my credit score up to 620 (it was hovering around 600). Bummed, because there were select homes (condos) for sale in the price point but inventory still is very low. It weighed on my mind because we have a household income of $40k (after bonuses) with a toddler and another baby on the way. With no other options, I felt like my only option to achieve the American Dream was to move out of state. Home values were rising and my window of opportunity was quickly fading away....

In early 2017, I decided to give it ago with a pre-approval. My credit increased significantly and there were still a few properties left in my price range so I figured there was hope. My second letter came in higher ($180k) and I was elated because there was a 2 bed / 2 bath condo listed for approx. $165k. I submitted an inquiry on Zillow and the first agent to call me believed there was an opportunity for me to do better but wanted me to cross qualify with her lender. They came back with an approval a little over $200,000 but there was some wiggle room.

The Purchase

After seeing several homes in both Riverside and San Bernardino County, my agent brought me to a property that was around the corner from our apartments in a neighborhood that needed some TLC. The home was a 3 bed / 2 bath / 1251 sqft. attached SFH with a nice size lot and a security gate approx. 30 feet from the front door for added privacy. Inside, the house was a dump! The carpet was red with various stains, both bathrooms and the kitchen needed to be redone. It was listed for $210k, and I didn't have many options but I knew this was the perfect opportunity....30 days later we closed at $208k!

The Renovation - Phase 1

We had a week from closing and when we wanted to get out from the apartment to start getting the home move-in ready. We painted the entire interior of the house with help from family, painted the kitchen cabinets white (it was a yellowish color) and put new chrome fixtures, new carpet except where there was title (the tile would need to go but it wasn't a top priority). We also started working on remodeling the upstairs bathroom, so we used the downstairs in the meantime. 

Upgrades

1. Remodeled upstairs bathroom completely (see photo)

2. Downstairs bathroom - glazed the walls white (the walls were covered in brown tile)

3. New Carpet 

4. Fresh Interior Paint

5. Luxury Laminate Flooring

6. All new Double pane windows

7. Whole house water filter

8. Patio Lights

9. Stone Veneer around front door

10. New HVAC System

11. 3.5 W Solar System

12. Quartz Counter tops in both bathrooms and kitchen

13. Nest Thermostat, Ring Doorbell, Nest HD Outdoor Cam

Approx. $30,000 in upgrades all completed in 8 months.

Financials

Here we go...we financed the property with 5% down FHA and paid approx. $10k towards upgrades with another $10k financed through a non-profit and got the solar system for free as part of a grant program.

Current Rent: $1,900 per month - Cash Flow $500 per month

Home value: $275,000 ($82k in equity).

ROUND #2!

16 months later, I purchased a 2 bed / 1 bath town-home for $189k (appraised for $205k at time of purchase) and got paid 5.5% (2.5% commission since I became a real estate agent earlier in the year, plus the seller was offering 3% - because the seller is related to the listing agent). We did minor upgrades, new quartz counters and laminate flooring throughout.

Today, I just signed off on my closing disclosure for the refinance for this property, reducing my PITI by $190 per month while netting $7,000!

The plan is to rent this property out in a few years, and I can get $1,700 per month allowing us to cash flow $335 (HOA fee of $200 included). It will be higher once it's rented because I am working on lowering the HOA fee as President of the Board, by installing submeters on the property!

The Future is Bright

The goal moving forward is to purchase a new property every two years and utilize an off-market acquisition strategy. With my credit now at 700, I'm able to lock in the best terms and favorable credit card limits. A few months ago my wife started working and I changed positions, bringing my income up to $50k flat. The income my wife makes will be used to pay off our credit cards while concurrently saving for a down-payment. We are realistically 3-5 years from another purchase as our next home would be a larger home in the mid 300k. 

I wanted to be very open and transparent with my journey as it is continuing to be written and be an inspiration to anyone out there that is reading this to know, IT CAN BE DONE! I did it on $40k per year raising 2 kids on 1 income, in California.