How I Turned a $10K Loan into $100K Net Worth in 3 Years with 1 House

My Motivation:

In January 2015, my wife and I sold everything we owned, moved from the outskirts of Dallas, Texas to the Greater New York City Area, and vowed to conquer the concrete jungle in our chosen fields of finance and fashion. As we transitioned from a nice 4 bedroom home in a cookie cutter suburban neighborhood to a crappy 1 bedroom apartment with a hole in the bedroom wall and higher rent than our previous mortgage, we realized that we were in a true sink or swim situation! To top it all off, we had worked hard to become debt free in the first 2 years of our marriage, but managed to accumulate almost $100,000 in combined debt over the next 2 years from my MBA program and my wife’s fashion school fees. Needless to say, we had to find a way to make more money quickly just to survive in the brutal North East. I began doing research, and after reading Rich Dad Poor Dad by Robert Kiyosaki, I knew real estate investing was our way to financial freedom.

Whether they admit it or not, most aspiring real estate investors are so afraid of losing money on their first property that they never get started or spend too long waiting for the “perfect” deal while good opportunities pass them by. I am far from a real estate expert, and I have made several mistakes throughout my investing journey, but I was blessed to have had a negative net worth when a great rental property was presented to me. I say blessed in this scenario, because the thought of losing money on the deal and being ruined financially actually didn’t scare me that much. “I’m already broke with way more to gain than to lose,” I thought, so I vowed to pursue the deal if the numbers checked out. My wife and I were in such a dire situation that immediate action had to be taken, and that made all the difference.

My Deal:

My first investment property was a 3 unit house in Newark, NJ that had been completely renovated three months before I bought it. The purchase price was $350,000 (I paid market value for it). We decided to “House Hack,” since living in one of the units allowed us to get an FHA loan at 3.75% and only put $12,500 (3.5%) down. We had $9,000 dollars to our name, so my wife took out an extra $10,000 fashion school student loan, which was just enough to prove to the underwriters that we could cover the down payment and three months of reserves. The seller agreed to pay my closing costs, and the monthly rental income was $1,250 per unit ($2,500 for the two rented units). Total monthly operating expenses were $1,090, and total mortgage expenses were $1,565. After all expenses were paid, I only owed $155 a month. This was a game changer for me, because the rent in our previous apartment was $1,350, meaning we were actually SAVING $1,195 a month.

My Wealth Generation:

To say we took a calculated risk is an understatement, but my finance background helped me quickly understand how the numbers could work in our favor. Over the last three years we have saved almost $40,000 in cash. Our tenants have now paid our loan down from $350,000 to $320,000. Our property appreciated around 4% a year and is now worth $390,000. In total, our net worth grew $100,000 in 3 years ($40K cash flow + $30K loan pay down + $40K appreciation - $10K student loan). I don’t advise every new investor to take such drastic measures, but I hope my situation proves that massive wealth generation through real estate is possible without a large amount of starting capital.