Real Estate Investing – From a Reader’s Perspective

How does someone decide to real estate investing?

Ask me, it is just like starting a personal finance blog. You just do it.

If you asked me a few years ago if I ever would start a blog, the answer would have been a resounding “no”. I had no interest in blogging, writing, online companies – you name it.

I think the genesis for the entire idea of blogging can be linked to an episode of the ChooseFI Podcast episode 69 with Michelle from Making Sense of Cents.

I am a podcast fan through and through. My favorite genre is personal finance (big surprise there). When I was listening to this episode, I was blown away by her story.  It amazed me that she could make so much money operating a blog.

However, it wasn't about the idea of making more money that sparked my interest. It was the fact that she could do something she was passionate about AND be a digital nomad (I think she's living on a sailboat right now).

I share this beacuse a huge personal finance subject happens to be real estate investing. A reader of Money Life Wax asked if they could share their personal story with regards to starting in real estate…

The result? You have a story by a reader we will call “Dave.” Enjoy!

Where does anyone learn about money?

I would say their parents.

These are the people who provide examples for most of what you do and know. Thankfully, both of my parents were gifted with money. Unfortunately, they were not even close to wealthy. We relied on sound financial management and frugality throughout my childhood. This was especially true as our household transitioned to a single parent household for a bit. 

When I was six, my parents divorced and I lived with my mother most of the time. Money was tight. I remember being on the free lunch list at school. I was also the recipient of charitable donations during the holidays. Ironically enough, it never felt like we were ever “poor”.

My mother worked extremely hard, putting in lots of overtime at her leasing job to make sure that we had everything that we needed. Eventually, she was able to utilize her degree in teaching to find a higher paying job as a teacher in our district. 

We had some lucky breaks. When my grandmother (mother's side) passed away, she left my mother enough money to purchase a home, which we did shortly after. My mother continued to work in her teaching job, gaining steady raises as the years went by. 

In high school, I remember my mother and father reconnecting again. The situation between them had improved and they decided to move in together.

Dad decided to move into Mom's house and sell his. It was an interesting transition overall, but it put us back in the position of a two-income household which lead to more stability overall.

Formative Experiences & Money

What experience can you name that truly shifted your experience or viewpoint on money?

For me, I remember being upstairs, playing video games or something. My dad walks in and has a piece of paper in his hand. He hands it to me. It's just columns of numbers in descending and ascending amounts. I now know that it was an amortization schedule. 

Dad starts explaining what the paper is and why it's important. He then explains to me how he paid off his entire mortgage in 8 years. He explained the strategy he used which was to pay ahead and pay mostly principal.  This saved him thousands in interest over the course of the loan.

Talk about an introduction to early FI/debt elimination concepts!

Dad definitely caught my interest when he started talking about the benefits of completely owning your own home. After you pay taxes and insurance – no one can ever touch your house. It's yours. You bought it. For some reason, that concept of security by paying off your mortgage just stuck to me, and it was something that I wanted to achieve in the future.

My start with life and money.

After graduating high school (as not the best student), I went to county college. I really didn't have a direction. After completing a generic two years degree (which took me three years) in county college, I transferred to a state school at a friend's behest. Upon arrival, they ask me my major.

I was undeclared. They asked my requirements or fields in interest. These are the things I wanted: guaranteed job, good salary and being in a major with high demand.

My interests were biology and psychology. Definitely not the most “sexy” of requirements and interests, but I knew that I needed a job that was marketable and could earn me a nice living. I did not want to have to struggle because of money! They suggested the field of Speech-Language Pathology (more colloquially known as Speech Therapy). After 5 minutes of convincing me, I was sold. The only catch was that I needed a Master's degree to practice.

So, I earned my Bachelor's degree, followed by my Master's. I took a few months off before starting after graduation but I was lucky enough to find a job relatively quick. At that time (as well as currently), therapy jobs were and are fairly easy to find.

I started my first job, which was not really “speech/language” related . Rather it focused more on helping the elderly/medically fragile in the nursing home setting with cognitive issues and swallowing disorders. As I gained experience and more importantly, paychecks, I began to understand the full extent of my financial situation.

Finances after college.

Let me start with a disclaimer. I was one of the lucky ones.

My dad owned two rental properties that he purchased from the sale of his home. He sold his home when my parents moved back in together (how often does that happen?!).

With this extra money, he bought two rentals. They provided great income which allowed my parents to fund my county college and state college payments as they came up. Basically, undergrad was paid for. However, graduate school was not. 

Additionally, I attended a private Catholic university for graduate school, so tuition was much more expensive. Throw in that scholarship options are much sparser for graduate school. and you're looking at heavy loans.  

wealthlenial money life wax

Assessing my situation, I figured out were I stood in the mists of all these changes and events. Here is my damage from grad school: 

I have that file saved on my computer as “1_12_12”. That was my financial status in January 2012. I felt fortunate to have $45k in loan debt. My peers had incredibly depressing amounts of debt (north of $100k or even $300K like Josh and his wife). My personal goal was to crush this debt as fast as possible. Being fortunate didn't stop at just having ONLY $45k in student loan debt, I had another advantage.  

During/after grad school, I lived at home with my parents.

While this was definitely not the most fun position to be in, the amount of money I could stockpile on my starting salary was substantial. I did not waste this opportunity.

Everything I made went towards my student loan debt. My method of attack was to target them in chunks as pictured above. I went after the highest interest rates first, emulating Dave Ramsey's “Debt Avalanche” concept. It worked like a charm. The more money I used to crush the debts, the more I had to speed up this whole process.

After 2 years, the student loans were history. My wife (fiancé at the time) and I moved out of our respective parents' houses and into an apartment in 2013, which slowed my debt repayment down.  However it did not stop it. By 2014, I had completely finished my student loan payments. Monthly savings: $525 per month.

Pay off your car as fast as possible.

Before moving out, I impulsively decided to buy a brand new car. I normally go used and the price between a comparable used car and new one were so close for this particular model.  It seemed foolish to go with used, especially considering the higher interest rate when financing a used car. So, I bought a $30k sports car.  It's a Subaru WRX hatchback so it's sort of utilitarian. Right?  

Anyway, I had a $20k loan from this purchase at a low rate of 2.9%. I decided on a policy of “rounding up” the payments from $367 to $400 to gain an edge on the principal. After a while, my balance worked it's way down towards $12,000. After piling cash away for months for no real reason, I had the cash to wipe it out. So, I did.

No more car payment. Monthly savings: $367 per month.

I share all this to tell you that with the money saved from paying off student loans and not having car payments I was able to shift my efforts to focus on the ultimate goal: Buying Real Estate.

Real Estate: Starting Out

I decided to change my job and gain more clinical experience. This meant moving 30-40 minutes south. We decided to purchase a house to build equity. We chose an area with low taxes that was relatively close to the new job while still retaining my parent's requirement that we stay within the same state.

So, we purchased our home. It was a lovely 1500 sq./ft 3 bed/1.5 bath home built in the 1980's. Around this time, I discovered BiggerPockets podcast, which is still a regular item in my podcast library. They talked about advanced real estate ideas such as real estate syndication and the BRRR method.

BUT, listening to over 200 podcast episodes about the variety of ways people invest in real estate switched my mind over to this idea.

After purchasing our personal home, I began looking around another home to purchase as a rental. I shared the idea with my dad.  He previously owned two rental homes and sold them just before the 2008 housing crash (That was gratuitous timing!). He was excited about the possibility of working together and also showing me the ropes of starting a real estate portfolio.

After a multitude of house showing and going through at least two realtors, I finally found someone who was great to work with. We paired together and started looking for a rental house. After a few months, we found one that could work. It was a 3 bed/2.5 bath town home, and it was 3 minutes from my then current home. We picked it up from the distressed owner and started to fix it up. Luckily, it was fairly straight forward. 

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After the rehab process was complete, we found great renters and brought them in. For more specifics, check out the post I did on my blog: Residential Rental Real Estate Investing: My Start. This rental brings in between $400 – $700 per month depending on the month's expenses, granted this gain is split between myself and my father. Monthly gain: $350 per month (my half).

About a month later, my wife and I decided that this town we moved to was just too rural and too far from our support systems. We began the process of selling our own home. We were lucky that we could move in with family during the transition. We sold our home 2 months later and bought a new one 3 months after that.

A few months after getting our new home, I found a foreclosed condo nearby that was a great price. Dad and I decided to pick it up, rehab it and rent out. It sounds pretty easy but the process took months. I also have blog posts on that whole process as well: Rental Home #2 – Acquisition of the Condo (Part 2) 

Monthly gain: $250 per month (my half). 

Where we stand:

As of now, our financial positioning is looking fairly bright. We are aggressively paying down our HELOC on our primary home. At this time we're trying to do $1,000 per month extra towards the loan (only $19k more to go!). We used a HELOC as part of the down payment, a strategy known as a Piggyback loan. That way, we could avoid paying escrow and have more control over our home expenses.

Plans for the future and getting to F.I.

The goals for the future simply involve working closer towards being financially independent or FI for short. The “FIRE” (financial independence, retire early) movement really appeals to me. I enjoy the possibly of spending more of time as I choose instead of working to simply survive.

The nuts and bolts of the plan to work towards FI involve acquiring more rental properties, investing aggressively (max out 401k, ROTH IRA), and optimizing my income by working per diem/ side hustles.

Every year, my wife and I inch closer to our goals. Of course, using a basic FIRE calculator says I will retire at age 50, but that's just looking at the money I am putting aside for stock/mutual fund investments – not real estate! I hope to have the option to be out of full-time work within 10 years. We will see what happens!

Q: What is your biggest question about starting our with real estate?