Story of a W2 Landlord- How I got started w/ a full-time job

[Kimberly Kesterke]

At 26 years old in 2006, the responsible thing to do at the time was to buy a house. At that moment in time mortgage companies were handing out mortgages to anyone with a pulse, and lucky for me, I had one. I found a cute craftsman style home with an adorable front porch and hardwood floors. 3% down, a 6.5% interest rate, and closing costs waived later, I was the proud owner of the house. I was officially a responsible adult!

Being a frugal 26 year old, I decided to rent out the other bedroom to help pay for the mortgage. I didn’t realize at the time essentially I was “house-hacking”, I just wanted the extra income. House hacking ended up being a great experience. I was able to bring in an additional $6,000 that year to contribute to housing expenses, mortgage and the emergency fund. I didn’t mind the additional roommate, and although I did not consider myself a landlord, it started grooming me to become one.

Fast forward to 2008, the legendary market crash. I was offered a new job which would require me to move about 2 hours away from my current home. My first initial thought was to sell the property- not because I didn’t love it, but because it was the “normal” thing to do. However, my neighborhood took a $30,000 equity hit and honestly I just didn’t have the money to close the gap. Short selling was out of the question for me because I didn’t want to damage my credit. At the end of the day, I decided to list my house for rent, and keep it as a rental property. My initial thought was that I would hold onto the property until the market bounced back and as long as I “broke even” I would be fine. I also figured I would rent a new place with roommates to keep my expenses low and add an additional security net.

It didn’t take long to find a renter for my property that would cover my expenses. I honestly lucked out because I didn’t screen the tenant at all- they just seemed like a nice couple and so I handed over the keys. I cringe a bit sharing that because I would NEVER place a tenant like that today. Even though that couple worked out, I’ve heard too many horror stories from other investors where the “gut check” didn’t work out for them.

The good news, is that once I rented the property, I never experienced a vacancy. (The house is THAT adorable). Even with multiple rent increases, and several tenants over the years, I’ve never gone 1 month without a tenant. Even so, early on it never occurred to me that there was an investment opportunity in rental real estate- not only with rentals in general, but the market my house was in. It wasn’t until 2015 that I really started to understand the power of landlording, rental real estate and investing in secondary markets.

Around 2015 my real estate light bulb turned on. If my one little property in Augusta, GA never experienced a vacancy- then wouldn't other properties in that same neighborhood perform the same? It was honestly a no-brainer, however being very risk averse, a mom to a 2 year old and holding down a traditional W2 job, rental real estate seemed like a risky venture. I started listening to Bigger Pockets, going to real estate investment meetings and attended a 3 day bootcamp hosted by my local REIA. It wasn't until 2017 that I finally took action and bought my second property- a duplex. The property owner allowed me to market the duplex to rent prior to closing and was able to find two renters immediately. I left the closing table and signed two leases that day. Again, never experiencing a vacancy on those two units since.

Needless to say, I was hooked on rental real estate from that day on. I went on to acquire 9 more units within 2 years- exceeding my monthly expenses with the cash flow profits. I am now a mom to a 6 year old, still a W2 employee and now a legit real estate investor. I manage my own properties- place tenants, communicate with contractors and oversee renovations- all from 2 hours away.

The moral of this story is that you CAN invest in rental real estate as a W2 employee. You CAN find great deals in today's market and you CAN invest LONG DISTANCE. You don’t have to ONLY consider deals in your backyard. Sometimes the best deals are the ones in a different market, community or neighborhood. If you are still on the fence, my advice is to take EDUCATED action. Hire a coach, attend a class, and do your research, but at a certain point, understand you are ready. Investing in secondary markets lowers your risk, because the cost of entry is lower. You can always place qualified tenants, hold onto the property for a couple of years, sell it and take the money to a primary market if necessary. The point is to take action.

[Llewelyn A.]

@Kimberly Kesterke

Congrats on transitioning into a Financially independent Real Estate Investor!

My own experience 21 years ago is very similar, except I invested in my local neighborhoods, within 30 minutes drive to each property in Brooklyn.

I also was a W2 Employee (a highly paid one though), and considered that to be my safety net while Investing was all about giving me the option NOT to work if I choose NOT to work in the future when my cash flow exceeded my expenses.

That's what Financial independence do... it completely lowers your stress level as you don't really need to depend on a job.

That being said, having the W2 job made the transition incredibly straightforward with minimal risk.

You basically are able to qualify for the best Mortgages, at least in the beginning, and having that advantage helps to lower the risk of that Investment.

Just like you, I almost ALWAYs advertise the apts before purchasing it, even though I did not own it at the time. It's really pre-marketing analysis.

If I find a great tenant, I let them know that I will be purchasing the building and that I have NEVER failed in buying the building since investing.

In the beginning, you also learn to be a Landlord over time. I absolutely believe that you need to have experience, which could take years, to really put together the right systems to make rental real estate work.

Once you understand how to be a good Real Estate Investor and Landlord, the next property gets easier, then the next, etc.

Eventually, you build up your portfolio. If you invested in the right locality, just like you did (and I also), tenants will be very qualified. In my areas in Brooklyn, tenants MUST have a 700 FICO score or better, and 3.5 times the Annual Rent (so a $2k monthly rental apt needs to have tenants with Annual Salaries about $100k or better). It is almost normal for me to have tenants that have above a 750 FICO AND above $200k annual combined income.

I actually don't subscribe to having goals of purchasing multiple properties per year. I actually think people should slowly transition by starting out housing hacking, continuing with their Careers, and then moving on to the next house when the opportunity is right which could be a few years to several years from their first purchase.

It's so easy, anyone can do it! I just don't understand why so many people do it the hard way, purchase way too many properties in the beginning when they haven't had enough experience, and when they are not prepared to be good Landlords from the beginning.

Taking your time to invest while keeping your job until financial independence is a strategy that doesn't seem to get much attention.

Congrats again!