I started quasi investing in real estate about 10 years ago when I bought my first house (well, condo) for $112,000. Okay, it was a primary residence, but it got me started. I renovated the condo with $7,000 of borrowed money and sold it two years later for $145,000. I took my $25,000 profit and put it down on my second home.
The second house was a dumpy farm house on ten acres of ocean front about 45 minutes outside of a small town. I borrowed bank money ($70,000 builder's loan) to renovate the house and sold it 5 years later for $470,000. It was at this time I realized the gold potential of real estate.
Okay, so I was not a real investor yet. But all the time, I was reading up on stuff on sites like CRE Online, and always looking at houses.
Here's how I got started investing in real estate...
My real investing career began about 4 years ago. We moved to my wife's home state. With the $180,000 equity from my second home (after it paid of our credit debt and student loans), we bought a house in an upscale area at a price that was around 30% to 40% below market value.
It was listed at $180,000. Newer houses in the area were selling for $300,000. My house needed quite a bit of upgrading. I offered $130,000. They shocked me with a $140,000 counter! My agent told me to respond with $132,000 final offer, and they buckled. It was a steal.
The three things I learned
My first lesson in real estate (after reading it lots of times in books) was learned: Find the MOTIVATED SELLER. Turned out, this property was listed for quite some time, and it was subject of a divorce proceeding. The sellers just wanted rid of it.
My TIMING (second most valuable lesson in this business) was impeccable, if not downright lucky. Not sure how you teach good timing to be fair. Not many books on it. But the other lesson here is that if you do not ask for a low price, you will never get it.
I put 20% down on the house and used up some personal cash to renovate the house, perhaps $60,000. Today, the house is worth over $300,000, and I have an $86,000 mortgage against it.
The third most important lesson in real estate is LEVERAGE. I took out some HELOCS against the property, and had decent enough income (at the time) to establish pretty good lines of credit with my banker. My banker is now a main player on my team, though she may not know it.
In the last 4 years, I have bought 3 more properties
First was an estate sale. I offered $70,000 for a 2-unit house listed at $100,000. They laughed at me but came back begging me to buy it three months later when it had not sold.
I renovated the house with about $30,000, and now have it rented at $2,000 per month. It cash flows $500 per month if not more. House is now appraised at $170,000 or higher. I am about $110,000 mortgaged.
Next house was another dump--a vacant house. I knocked on the neighbor's door and asked if she knew who owned it. She sure did. It was hers.
I asked if she wanted to sell it. She did. Said she wanted $58,000. Today I would have kissed her for that price. Back then, I gave her a stinker offer of $52,000 and paid her legal fees. She accepted. I renovated for about $30,000, and today the house is appraised at $137,000. It is rented for $975 per month and cash flows over $300 per month.
My last house was another vacant dump. Owner was out of town and wanted out of it. I went to the town hall and checked the roll book. Contacted the owner and spent a good 2-3 months closing the deal as he owed on taxes, etc.
He'd had the house listed for $99,000. It never sold. It had a bad leak and mold in the kitchen because of it. I asked him what he would sell it for. He said he just wanted to pay off the $62,000 mortgage. Again, I could have kissed him.
I put $60,000 into the house, and today it is appraised at $205,000. I have it on a "rent to own" and cash flowing $800 per month. I'll sell it at full price in 12 months and make $45,000 on closing.
My advice to you
10 years ago, I was reading success stories like mine thinking it is not possible or that people make it up. Well, today, I have four income properties making $54,000 a year in net rent.
The cash flow is around $25,000 annually. My property is worth over $800,000, and I have debts against it all of about $440,000. I have access to $275,000 of RELOC equity to go and find my next deal.
While I am not a monster investor by any means, and really just starting out, I'd suggest to anyone reading that the main key things you can do to be successful are:
Make your money when you buy. Always buy below market value by either finding distressed homes or situations where owners just want out (moving, divorce, estate sales). When you make your money when you buy, it removes a bit of the risk. Well, that's what worked for me.
Don't be afraid to knock on doors and ask if they want to sell. Look for deals away from the normal channels. FSBO, craigslist, cheap signs on the lawn, boarded windows.
And finally, don't be afraid to low ball on an offer. You can always go up in price, but never down.
One last deal for you...
About a block away from my last house, there is a little sign nailed to a tree: Land for sale and a phone number. You can hardly see it. I stopped by the side of the road and called. This guy lives out of town (sound familiar?). The lot is big enough to subdivide into 3. There are 3 municipal services in place on this one big lot.
He is selling it for near the price of one lot: $45,000. When I buy it, the three lots would probably sell for over $100,000. I'd better stop writing and go and snatch it up before someone else does.
That's my 2 bits. Last time I posted on the forum was about 5 years ago, and that was one of my biggest problems at the time. I never took action. Biggest advice to get started: TAKE ACTION! Make offers...