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Updated over 7 years ago,
Got my first rental property (4 units) thanks to BP. [Long!]
It all started with Jane Austen, actually.
My wife is a huge Jane Austen fan. Me? The extent of my knowledge is from watching the Pride and Prejudice episode of the PBS kids’ series Wishbone. But I am a history buff. Shortly after we married (10 years ago - how time flies!), I picked up a book she had gotten as a present, called What Jane Austen Ate and Charles Dickens Knew: From Fox Hunting to Whist-the Facts of Daily Life in Nineteenth-Century England, by Daniel Pool. I immediately found it interesting to read all sorts of details about what life was like in Victorian England (which was also the world of Sherlock Holmes, a series I read and enjoyed as a teenager).
I began to read about the lifestyles of the gentry, the peerage and the royalty. For many, their days were filled with silly dinner parties, vacuous social visits, rigged fox hunts and lots and lots of gossip. They spent summers at their countryside manors and winters in Mayfair. It’s not that I envied the way they lived -- but I kept wondering: How can they afford these lives of idleness? Where does their money, that seems to be perpetuated throughout the generations, come from?
Then I got to the part where Pool discusses the great land estates of the aristocracy. The noble classes were the original “landlords”; they were lords, and they owned lots of land. That land had tenants on it, and those tenants paid rent to the lords. Enough rent to finance privileged lifestyles. It was an income source that didn’t require them to work and never dried up.
The wheels in my mind began to turn. As the son of two lifetime W-2 salary middle income earners, I had never put a whole lot of thought into how the wealthy got where they were and the concept of passive income was somewhat mystifying to me. Now I realized that people today, including my own landlord, were actually doing the same thing that the English nobility did. Of course, the trick was figuring out how to get the property.
I was studying at a rabbinical seminary at the time and had no thoughts of getting a full-time job, let alone building a business or buying rental properties, anytime in the near future. But the book planted a seed in my mind that remained there over the years, and when the time came, it sprouted.
Fast forward 7 or 8 years. I have been working part time as an editor to supplement my wife’s income, when I find out we are expecting our fourth child. The family’s expenses are growing, and I realize that it is time to leave yeshivah and work full-time.
I toyed with various options - none of them real estate - until I was given the opportunity to expand my editing job into a full-time position.
I began to think about our and our children’s futures. Even though I was “only” 29, I knew I had to start saving for life-cycle events and retirement. I took a look at where my parents and my parents-in-law were. My father worked for the federal government for 40-plus years and, thank God, he has a decent pension, but it’s basically exactly what he needs for living expenses and the modest things he likes to spend money on, like buying books, traveling to visit his grandchildren and buying them presents. No more than that. My mother is not so fortunate. She is still trying to piece together her portion of my father’s pension, her own very small teacher’s pension and social security to make ends meet. Neither has a sizeable retirement account or as much money as I envision needing for me and my wife to retire comfortably. And that’s after a lifetime of work.
My parents-in-law raised seven kids (I, on the other hand, only have one sister). My father-in-law is an attorney who still has to work long hours and often nights and weekends for a very low salary, hoping to win “that big case” that will pay out a sizeable sum. Finances got hard enough that about 5 years ago they sold their house, moved to a smaller house and my mother-in-law got a full-time job for the first time in decades. I know they have something saved for retirement, but not enough to retire on….
I wondered how I could make smart decisions that would allow me, God willing, to retire when I needed to with enough money that I wouldn't have to worry about living expenses or having enough money to help out my kids when I wanted to. In short, I wanted to plan now to be in a better position than our parents are. I started putting little bits of money into IRAs invested in index funds. However, I didn't believe that would necessarily achieve my goals - especially considering that analysts don't expect the stock market to perform as well in the future as it has historically. My high school computer teacher made us create a retirement spreadsheet that took the historical 100-or-so-year average return of the stock market (10%/year) and extrapolated it to our own retirement if we saved monthly. Well, today some smart people are saying that you should actually expect less than that 10% going forward - perhaps closer to half that ROI! (https://blog.wealthfront.com/us-stock-long-term-returns/)
In 2012, around the bottom of the housing market where I live, we had purchased a house. We had always thought it didn’t make sense to pay our landlord’s mortgage instead of our own. I saw that housing prices were at lows that hadn’t been seen in a long time and interest rates were at historic lows, and with some creative math we might just be able to afford a home in our (very pricey metro-NY) market. I figured it was now or never, so we did it! It may have been an educated guess more than an ingenious investment, but that primary home purchase was the best investment I have ever made. By 2015, I saw how much my home’s value had climbed and how I had so much more equity in the house than I would have had the value stayed the same. I realized that I was again standing at the crossroads of opportunity. If I “made” this much money in real estate doing (basically) nothing, shouldn’t I cash out and leverage that into more real estate? The seed planted by the Jane Austen book had sprouted. I wanted to invest in real estate. But how?
I started looking around on the internet and I was fortunate enough to find the blog of a reputable investor, Mark Ferguson of InvestFourMore.com. Although he has products to sell, his blog also has tons of free, high-quality content. I also appreciated that he was open about his numbers, how much he paid for properties, where he got money to finance them and how much profit he made flipping. The first of his podcasts I downloaded was #45 with Michelle Yarber. It spoke to me because unlike the other high-powered investors Mark has inverviewed, Yarber was a regular person with a regular job who started very small.
Like me.
I can thank Michelle Yarber for turning me on to BiggerPockets. At one point in the podcast she talks about how amazing the community is. I was thinking, “Bigger What?” I wondered if this website could really be as great as she was claiming.
In a word, yes. It is!
I have learned so much through the forums, blogs and BP podcast. If you put in the time to sift through it all, you can find so much information here that is worth gold - literally.
I had been learning for over a year and even put in three or four offers when I stumbled across a posting on the BP Marketplace. It attracted my attention because it was advertising a property in the area where I grew up (about 3 hours’ drive from my house). I had already started looking at property there because it is much less expensive than where I live and I have family that knows the area. Then I realized that the person listing the property lived less than a 15-minute drive from my house! I immediately contacted her and set up an appointment. She was very happy to meet someone new starting in investing and promised to help make it work for me. She gave me her assessment of the area and its potential. I did my own research and agreed with her.
Using my unlimited "pro" access to the BP rental calculator, I ran the numbers on her properties over and over again, trying to come up with something that would work. I figured out the price I needed to offer to meet my criteria for ROI. I was able to send her a PDF of the calculator report that showed all the numbers very clearly, and I explained why I was offering about 9% less than her asking price.
She accepted!
After an inspection and some negotiations on repairs and closing costs, we closed on the four-plex at the end of March 2017. The smallest unit was vacant. It’s very small and a little harder to rent out than the others, but we finally got a tenant for June and I’m very happy with how things are going so far. After accounting for maintenance reserves, we’re going to be making 20%+ cash on cash return.
Although this post is very long, it’s a very shortened version of my story. Bottom line is, I am very thankful to BP and all the people I’ve met along the way who have helped me on this journey and helped me to understand the power of intelligent real estate investing.
Some other time I’ll post on another investment I made that was supposed to be more passive but ended up being very nerve-wracking, and I still don’t have my money back…. But I thought to write the positive first.
Side note: I met my partner because I heard a friend and neighbor of mine mention offhand once that he might be interested in buying a property up the street that had been for sale. That told me a few things: 1. That he had money to invest. 2. That he was interested in investing it in real estate. I didn’t say anything at the time and kept that in mind for about a year, when I was finally ready to pull the trigger on an offer. I approached him and he agreed to invest with me, and so far it’s turning out to be a great partnership. Lesson - always keep your eyes and ears open for potential investors and partners.