Buy, Hold, Passive Income and Patience

[Tracy Sharpe]

Our most successful real estate triumph has not completely manifested. We purchased 5 houses in Fort Worth, Texas (Sendera Ranch, Haslet, Texas) in 2005/2006. In each case, we used conventional financing, 20% down. After we purchased these homes, we rented them. The challenge was to be patient. Even though we put 20% down, we still had to make the monthly mortgage payments which also included paying the equity loan that we used to finance 5 rental properties located in a community that was new and had few or no amenities. In fact, there was no Walmart, McDonalds, Pizza Hut, Burger King, or any medical facilities close by. 

Before our purchase, the Realtor whom we were working with stated that the Alliance Corridor will one day be a hot area and that many people would be moving into the area because of future developments. Unfortunately, several years after purchasing our rentals, the economy took a downturn and the equity in our rental homes was gone and there was still very little development in the area. The economic situation caused many people to lose their homes throughout the United States because they purchased them with little or nothing down using an interest only loan. 

Furthermore, because so many people lost their home to foreclosure, we were able to rent our homes through the economic downturn without a problem--even though the area was not fully developed. Moreover, despite the drop in value of our rentals, our renters were paying the mortgage so we held on. 

Because we took action to buy, hold during a downturn, use the passive income to make our mortgage payments and maintain patience during a chaotic time, now, in 2016, we have an Amazon Distribution Center, a Walmart, McDonalds, Pizza Hut, Burger King, dental offices and an emergency medical clinic within 3 miles of our rentals. Additionally, we gained all of our equity back and more. We also have increased the rents by over $200 in several of our homes, and if we sold today, we would sell at a profit. Although we continue to have challenges, our triumph has been a result of taking action in buying, holding, using passive income to pay our mortgages and being patience during an economic downturn.

[Tracy Sharpe]

Hello Michael, I just wanted to reply to your questions.

We are originally from California. We purchased these homes in Texas because they were cheaper than California, the mortgages were lower, and we found that we would have the cash flow to pay the mortgages. Moreover, we believed the values would eventually go up if we ever decided to sell in the future.

We purchased 5 properties in Texas over a 2 year period, 2005/2006.  I was an insurance agent so it was real easy to get a loan back then.

During the economic downturn, we were able to hold on ONLY because we put 20% down which lowered our payments to where we could still charge enough rent to pay the mortgages. I am not brilliant, it just happened that way.

When we purchased the homes in 2005/2006, we didn't have a hard time renting the properties out because so many people loss their homes through foreclosure that we were able to rent them very easily.

Furthermore, even though many renters had bad credit, they were responsible people so credit wasn't a criteria that we used to rent to people. We looked at prior rental history and a spiritual gut check to determine our selection. We have never had to evict a tenant since we have been renting the properties. 

I didn't do anything significant to research the area in Texas as I should have done. We did calculate the potential rents versus the mortgage payments to make sure that the rents would cover the mortgages. We also believed that the prices of Texas property would eventually increase because so many people were leaving California due to the high property costs to come to Texas.

In any case, as long as the mortgages were covered by the renters, we had no intention to give up. Even when our equity dropped significantly during the downturn, it didn't matter as long as the houses were rented. It was a tough period if we just looked at equity alone but our goal was to have passive income.

At this point in time, we are dealing with refinancing challenges. If we can lower our interest rates on a few of the properties, the more we can keep in our pocket. Thanks for your encouragement.