🌊 And Then My House Flooded... AGAIN. 🤿

I love real estate as an investment. I love that it’s democratic. You don’t need to have advanced knowledge about anything like quantitative trading, how options work, or how to anticipate the swings of value in cryptocurrency. It’s pretty simple. As inflation occurs over time, hard assets appreciate in value so if you can buy some property and hold on to it for years, it’s going to be worth more. If you can rent it, all the better. In that case, someone else pays the mortgage and you get a growing amount of monthly cashflow year after year while the loan payment stays the same.

Another nice thing about real estate is it permits a margin of error. You can make mistakes and as long as you're willing to put the work in and stick with it, the likelihood of total loss or being so upside down that time can’t fix it, is pretty rare.

My very first property I bought was actually a little bit of a disaster as far as first deals go. It’s a really cute duplex near the University of Nevada, Reno, but in short, our inspector missed some really big things on the inspections, and I was a total rookie so I had no idea what to look for. The property had some significant foundation issues that led to the property being prone to flooding during large rain events. Needless to say, as it unfolded my expectation of being a property owner vs the reality of being a property owner was starting to look stark.

The first year I bought it I only knew about the foundation issues after replacing the windows. It was obvious that the foundation walls could leak water so my buddy and I tore the property apart and remodeled it with wainscoting that wouldn’t be affected if a little water leaked in. In other words, we got it back to rentable condition and spiffed it up a bit while we were at it. When I was tacking up the last section of baseboard, I hit a waterline with a 3” screw, and it took me 15 minutes to get the water off because I didn’t know what I was doing. I had literally just spent everyday for a month working here, and I was standing in a puddle with laminate flooring that WAS NOT waterproof beneath me. Oi vey!

That was 2016. We got the floors all dried out, rented it, and then we had a pretty dry winter so I didn’t know about the REAL flooding issues till the next year. In 17-18 we had a really big winter and I had to kick my tenants out when 3 inches of standing water accumulated on the floor. The soils were so saturated from the rain that the water was draining from the surrounding ground into my unit 😭. That spring I hired a contractor for $25k to do some foundation work that mitigated the flooding and REMODELED IT AGAIN. At this point I’m at $75k just in remodel cost (not to mention countless hours). At this time of my life that was A LOT OF MONEY.

I had expectations that this property was going to be the first deal of many. My plan was to buy one each year, but all my cash was going into this one property and I even had to take a bunch of loans from family to get through it. Things were not working out how I planned, I felt really stupid, and I was really disappointed… If the insurance company was able to access my phone, they would have been concerned too because I was having some “creative” ideas on how to fix the problem.

But something crazy happened that I didn’t expect. Well - I did expect it. Real estate is supposed to go up in value, and rents are supposed to increase over time, but in spite of all my mistakes and the mishaps, as time went on it made a decent return on investment. And when I say “decent” I mean better than your 401(k) has ever performed, and better than anything your Edward Jones advisor ever offered you. It’s hard to really wrap my head around that the numbers in the chart below are the numbers, but they are.

For the nerds that want to see the math, you can access the spreadsheet here: Spreadsheet

And on top of the return, I experienced a lot of personal growth and pride of ownership. Ultimately, though slower than my original expectations, it did help springboard me into my next property. All in all, in spite of the challenges it was truly a really good deal. I would argue that real estate is one of the best “get rich slow” schemes the world has ever known and I love seeing people take action with it knowing how it will payoff for them in the long run.

So what do you want to do? Dollar cost average the S&P 500 for an average return of 7% per year or get your hands dirty and buy real estate? For me, I know my answer.