How I have never paid a single dollar to rent

[Nicholas Kitchen]

My name is Nick. I started prowling through the Bigger Pockets forums and listening to the podcasts about three years ago trying to inhale as much information as I could. Amazing, amazing resources here! Unfortunately, my ego got to me about a year after and I thought that I didn't need to read anymore. I thought to myself, hey, I am making a profit, obviously I'm doing something right. I don't need to waste my time here. Boy was I wrong.

I wanted to share a story of mine in hopes to inspire some people out there that may have been caught in a similar situation I faced last year. Let me give you a brief summary of who I am:

I am a Florida native. Yep, born and raised - not many of us left. I have a full time job flying for a major airline, making six figures while working only 13-15 days a month. I call it the best part time job ever. While this hobby was once just my hobby, it became a job. Over the years, I determined that I wanted to make as much money as possible while working as little as possible. I seemed to have figured that part out with my current job, it seems. As greedy as it may come across, it's just not enough money and not enough time off. I learned long ago that wealth and financial freedom is not the same thing as rich. I have rich friends and I have wealthy friends. And they live completely different lifestyles. Personally, I like the lifestyle of my weathly friends. That's where I want to be.

I moved to Jupiter, Florida in 2008 for a new job. I moved in with my friend who owned a nice 2/2 townhouse in an awesome Planned Urban Development called Abacoa. Being that he knew and trusted me, and he needed money for his mortgage, he only charged me $500 a month. A steal. Unfortuantely for him, as the financial crisis hit and his getting laid off, he had to short sell the townhouse because he just couldn't afford it any more. All I know is that he purchased this home at one point for $280k and the bank was willing to sell it at $97k. I did not know a thing about real estate. Never thought I would ever want to be a landlord, own a home so quickly, etc, but I DID KNOW that this HAD to be a steal. I purchased his house in December 2009 for $97k.

All I knew about mortgages was what Dave Ramsey taught me in his book: The Total Money Makeover, is that you don't want to be in debt. I was living by the principles of this book for a few years at this point. I put as much money as I could as a down payment - damn near went broke doing it - as to have a little mortgage payment as possible. What changed? Pretty much nothing, except now I owned a house and my friend was now paying ME $500 a month to live there. Seemed like a good swap to me. The problem lies in that it never CLICKED with me. I never had that AH HA moment where I stopped in my tracks thinking to myself - wait a minute - if it's this easy, why not purchase more homes? If they are this cheap, why am I not indebting myself. I guess hindsight is 20/20 you could say.

As the year went on into 2010, he found himself a girlfriend and got engaged. I moved in with my girlfriend and this townhome became my first real rental property in 2011. Still not having a clue as to how to handle a tenant, how to figure rents, etc. I had to hire a real estate agent. Well, luckily for me, that was my girlfriend's full time job. Found a tenant, vetted them, family moved in and whala - I'm making money without having to go to work.

In the summer of 2012, I found myself trying to research if I am actually making the profits I should be making on this unit. This is when I accidentally sumbled upon Bigger Pockets. The biggest thing that stuck out was one quote I read over and over again- "I like to net $100 per door. Appreciate is gravy." I couldn't believe it. Never would I think netting $100 per door was considered a good deal. Lets take a look at my actual numbers on this particular unit:

Purchase Price $97k, Fixed Expenses: Mortgage $450, HOA $400, Insurance $70, Taxes $200 for a total of $1120. I was renting this unit at $1500 a month. Almost $400 a month net profit. I did this until January of 2017. Sold the unit for $180k. Only rehabbing I did was put new flooring in there between the two tenants that I ever had. Minus closing costs, I made over $110k on this property in 7 years.

Lets go back to when I said I stopped reading Bigger Pockets. Once I listened to a few dozen podcasts and read dozens of articles and already making amazing profits, my ego got to me and I said to myself - I'm a big shot, clearly I'm doing things right. I don't need to 'waste' my time on here. Funny how one lucky deal can change your outlook. In the winter of 2015, I wanted to purchase another home. I had saved up some money from my job and was ready for another purchase. By now I was onto the mindset of low down payment, finance any investment I can. A few months went by as I went through every listing on the MLS with a fine tooth comb. Finally one popped on the market that I just knew was the one. Bank owned, needed new paint and new floors- everything else was solid. I knew my numbers this time and I knew it was another winner. Same neighboorhood, 2/2 condo. I furnished the place and put a tenant in there on a two year lease. Everything went well until about 20 months into the lease. The unit two floors direclty above this one had a leak from the washing machine. This was so bad that the water had actually went through the both floors, into my unit. My tenant came back from a walk to find the entire house flooded with water. It was like a waterfall in the closet. The new hard wood floors had to be replaced, walls painted, house air dried, among other things. This ended up being a disaster and what eventually led me to the sale of both properties. The tenant had been searching for houses to purchase in the area and had been looking for ways to break the lease. Between insurance company, adjusters, contractors not doing what they say, etc, the house, while still habitable, was not the prettiest for about two months. It took over two months to finally get this house back in shape and in the condition it was when the tenant moved in. The tenant ended up getting an attorney saying that I was not doing my job as a land lord and that I had actually broken the lease for that reason. While I knew that he wanted to move, and the headache of this entire ordeal, I decided I wanted to get out of the rental industry completely. I did not want my life to encompass these kinds of headaches. I don't want another stressful job. I did not want to spend money on an attorney to fight this clown. I quit. I ended up selling the unit the day after he moved out. Worked out perfect for both parties. I did not know how to deal with this kind of situation because it simply had not happened yet.

Actual numbers on this unit were:

Purchase Price $132k, Fixed Expenses: Mortgage $620, Taxes & Insurance $350, HOA $430 for a total of $1400. It rented for $2000 a month. That's $600 a month net profit. Put hardwood flooring in and new paint which cost me $5k up front. (So call it about $137k purchase price). I sold the unit in March of 2017 (two years after purchase date) for $180k. Minus closing costs and the 20 months that I had it rented for I made $60k!

In December of 2015 I decided I wanted to be closer to work. I moved to a beautiful 1/1 waterfront condo in the heart of downtown Fort Lauderdale. My rent was $1800 a month. Yea, that's a lot of money. I put my furniture in it and lived there for a year. Still not wanting to pay rent, I decided to check out AirBnb. Turns out where I live is a HOT SPOT. When I go to work, I'm typically gone for three or four days at a time. When I realized I could get $350 a night for my condo, holy cow, all of a sudden going to work wasn't so bad. I paid $1800 a month for 12 months - $21,600 rent to this leasing company. Fast forward 12 months and 77 AirBnb nights later I actually netted $5,350 off of a condo I didn't even own.

I got scared off when I had the first issue. I ran with my tail between my legs. I thought I had knew it all because I was already doing so well without really knowing what I was doing. Did I go wrong? Yes and No. Somebody once told me that there is nothing wrong with taking a profit off the table. I did just that. My bank account reflects that now, not my asset table.

Everywhere I have ever lived, I had another source paying for my rent. I have never paid a single NET dollar for a rent payment. Something to be said about having no mortgage, tax or insurance responsbility ;) ... I am currently living downtown Las Vegas temporarily for work. Can you guess how much I'm paying to live here? I bet you can.

What would I have done differently / what did I learn?

1) I would have done a lot more research on invesment properties as far as best ways to get loans for them and learn how to calculate actual net and gross profits. I didn't know a thing. I needed this information before the first purhcase I did in 2006. I would have scooped up several of those with lower down payments instead of one home with a giant down payment. This is good debt! Debt that makes you money!

2) I wish I would not have stopped reading the Bigger Pockets forums. There are so many resources here that I could have used and saved this tenant and myself money, time and headaches. Probably would still have both units still prodcing passive income.

3) Realize that every bad situation comes a good one. In my current job, we always say we never stop learning. I learned that real estate investing is the same way. Too many variables to know everything. You will never know everthing. When you think you do, it's time to quit ;)

So my big question to the commnunity is where to go from here? I would love to hear your thoughts on what you would do with $100k cash laying in your bank account accruing a mere .25 interest. That is where I sit. One multi unit complex? Several duplexes?

Thank you for taking the time to read. I hope I have shared a good story that will make you think on a different platform. Don't run away from headaches, take an asprin and tackle it. Learn from it and use that experience to make the next one that much easier.