In late 2013 I was living on a small Taiwanese island just off the coast of China. My wife and I were renting, and I began to think about buying a house instead of giving money to a landlord every month. The problem was that the real estate market there was nuts. A simple 3/2 apartment would cost at least 500k USD. Renting that same apartment, however, would cost about $500 USD. (The Taiwanese real estate market is almost 100% speculative, and with their extremely low birthrate, a crash is going to hit them pretty hard within the next 20 years....but I digress.) Even if I could afford the mortgage (I couldn't), if I ever left, there was no way it could ever pay for itself through rent.
So, we began saving up money for a down payment for a house in the US. I figured if I was stuck paying rent, I'd better make sure that somebody else was paying me rent too.
In the summer of 2015 we bought a 3/2 in Claremore, Oklahoma (outside Tulsa). We paid $92,500 for it, and put 20% down. It rented for $1050 a month.
This wasn't a home run. Mortgage was about $550, and the manager took 10%, so it "cashflowed" $300 a month...if you didn't think about vacancy or maintenance. Knowing what I know today, I would not have bought it.
But it did have some upsides. It was built in 2001, so there wasn't much in the way of maintenance. And once we got a tenant in, she stayed for 4 years. I took the extra $300 every month and put that towards the mortgage, because I didn't know what else to do with the money.
Two years later, we moved from Taiwan to Central Wisconsin. I found a run down duplex in Wausau and bought it for $25,000. When I spoke to the bank about the loan, I was able to say that I was a landlord, and had been an investor for two years. When I talked to the seller, it wasn't as wide-eyed greenhorn (even though that absolutely is what I was). It's hard to describe to those who haven't experienced it the way realtors and banks treat you differently when they know that you've closed a deal in the past.
In hindsight, buying that duplex was probably a mistake. I put 35K into it (which was expected), and an ungodly number of hours. My family pretty much didn't see me for a year. And even today, there is work that I'm slowly paying for as money from rent comes in. I don't regret buying it though; I learned so much about construction and tenant management from that deal.
Last fall someone in Stevens Point (where I live) listed a duplex for 135k. It sat on the market for months. Then, in one fell swoop, they dropped the price to 95k. It seemed to me that they had shot far below what it could have sold for in their haste to sell. I put an offer in; there were other offers as well. I eventually got it for 96k.
But how to pay for it? I didn't have the money for 20% down. But I did own a single family house in Oklahoma that I had been steadily paying down. Long story short; that original house, which we bought for 92,500, appraised at 117k. At the time, we only owed 57k on it. A local bank was willing to finance both properties as a package, and I only had to bring 8k to the table to do it. A couple calls to friends and family, and I had the money.
Last month we sold that original house in Oklahoma. We sold for 118k. When we sold, we had to pay the mortgage down to 80% of the value of the remaining duplex, so I ordered an appraisal. It appraised at 112k. This means that the day I bought it for 96, I made $16,000 just by signing on the dotted line. Then, when I sold the original house, I only had to pay the mortgage down to 89K; just $7,000 below the original price.
After paying back friends and family, paying the bank, the realtors, closing costs, etc, we have $35,000 in the bank. We have our initial $19,000 back, along with $16,000 friends, plus a cash flowing duplex that we have 20% equity in. I've established a track record of rehabing properties, and I have a solid working relationship with a local bank. My real estate agent knows that I close deals, and he will text me as soon as something I might want comes on the market.
My point here is that it wasn't a great deal. 92,500 for 1050 in rent is not bad, but it's far from great. But the fact that I took action and bought it has had an incredible ripple effect over the past four years.
Next up, we're looking to buy a house hack. I've got another duplex that I'm in the middle of rehabbing, and a flip that I've partnered on where I'm putting zero money into the deal.
Just take the plunge. You aren't going to get a home run on your first deal, and you don't need to.
