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Rental Property and 400% ROI – Part 1

by Matt Jones, CPA
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I bought and sold two properties for a gain of over 400% in three years. I’m sharing real numbers and full details of the process and structure. You’ll also read about the headaches involved and why I haven’t bought since. 

This isn’t to brag — I’m no real estate mogul — I just want to make this worth reading and provide an outline of the ups and downs of real estate investing. I worked hard, but I also got lucky and just as easily could have been unlucky. 

In college I read Rich Dad, Poor Dad by Robert Kiyosaki and instantly wanted to invest in real estate. I wasn’t ready then, but it was always on my mind. You’ll find this book near the top of my reading list. It had a huge influence on my mindset about money and investing. 

In 2015, I was ready to get serious about buying a rental property. As usual, my approach was to read on the subject. I also found successful investors through my network 1 who were kind enough to share their time and offer insight and answers to some of my more complicated questions. 

I treated these investors more like mentors. I made our interactions as painless as possible for their schedules.  If needed, I would completely change my schedule and drive to meet with an investor at a location convenient to them. 

By making it easy for people, I always found them willing to help. I wasn’t after their money or a handout (and I always paid for lunch), just their advice and knowledge. It’s amazing how few people had asked them for advice, but how many people did ask for money or a job. 

My sister introduced me to her high school classmate, Brian. Brian had done well buying and renovating properties. He offered some advice, encouraged me to get started as soon as possible, and offered to help if he could. He wasn’t flashy or arrogant, but he obviously knew what he was doing and provided a wealth of knowledge. 

It’s not surprising that investors like Brian encouraged me to “get started soon” even though I didn’t have a pile of money to invest or experience with real estate. In fact, I still had a car loan, student loans, and a small credit card balance, and, I’m not exactly what you’d call “handy.” Still, they promised that if I followed their advice and was patient enough to find a good investment, it would work out fine. “Run the numbers, leave emotion out of it.” 

What did surprise me were all the horror stories I heard from family and friends who had never bought, rented or sold an investment property. “Oh, so-and-so’s cousin had a friend that had a bad tenant. You don’t want to be a landlord.” Take this advice with a grain of salt. My family and friends wanted to protect me and I appreciate that. But I needed to take my own calculated risks. 

I’d spend hours walking and driving neighborhoods. My weekends were consumed by research, reading, and listening to podcasts on real estate. I built investment spreadsheets using Frank Gallinelli’s book (What Every Real Estate Investor Needs to Know About Cash Flow) as a guide. 2

I met with some realtors to look at properties I found listed online. Many of the houses were gorgeous, with improvements and professional staging. I’d love to live in any of the houses. But, the houses never seemed to pass my financial tests. Too many people were looking at realty websites and driving up prices. Consumer confidence was rising at the time and prices along with it. 

I made (or perhaps borrowed) a rule. I’d only be the “first or last” to look at a property. Either before it is listed or after others gave up on it. One house I looked at had been on the market for nearly two years. It was a rental inherited by four siblings and none of them wanted to fix up the house. They just wanted cash and would consider any offer. I regret not buying it, but I wasn’t ready for a project of that magnitude. 

I checked Craigslist and realty websites for properties and sorted “oldest first.” I even went to an estate sale to ask if the house had been sold yet (it had). 

Then, after several months, the phone rang. It was Brian and he wanted to talk. He had a property and, if I could move fast, it could be mine. I was all ears. 

In Part 2 of this series I share the details of purchasing Brian’s duplex and finding good tenants.

Thanks,

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