In 2017, we spent most of the year paying down our debts while also optimizing our finances and lifestyle such that we could start bumping up our savings rate to work towards our plan for financial independence. When 2018 started we began to lay the groundwork for maxing out our retirement accounts and investing the rest in a brokerage account (we dabbled with Betterment, but kept most of our investments in Vanguard).
However, when I started running the numbers, I saw that our projections had us reaching our financial goals in 10 years. Ten years doesn’t seem like much when compared to the 40 years that an average person works to get to 65. But having already been in the workforce for 15 years without any clear goals, I was chomping at the bit to get that number down more.
Early in the year, through listening to podcasts and reading various blogs, I started researching and dabbling into some side hustles. After trying a few out (WeGoLook, ErliBird and a few others) and even considering to apply to be a notary, I realized that none of these would provide enough money to warrant the time that I would be spending on them.
A Different Path
A topic that came up often when reading about financial independence was real estate investing. As I am wont to do, I dove headfirst into the subject. Early this year, I spent countless hours looking at Zillow, making spreadsheets and diving into all things BiggerPockets – their blogs, forums, podcasts and even reading one of their books – The Book on Rental Property Investing by Brandon Turner.
The latter resource really piqued my curiosity – being able to acquire a property, get conventional financing and collect enough rent to cover the expenses and mortgage and generate some cash flow seemed like an appealing alternative to just plowing thousands into VTSAX and hoping that the stock market generates 7% on average every year like my projections counted on.
However, without a fire burning under me and without a roadmap as to what my plan in real estate would be, I did… nothing. There wasn’t a manual of how to follow this path for a couple with four kids in Western Pennsylvania so I sat on my hands.
Months later, my wife and I went to a meetup for our local ChooseFI group. The topic for the night was “Real Estate (Investing and Hacking)”. I had been to a few of the meetups before but was super excited about this one due to the topic. Over the din of the loud and crowded (on a Wednesday no less) brewpub that we were at for the meetup, we heard the story of a couple who had purchased a rental property in one of the suburbs to the north of us.
They were able to explain why they invested where they invested and how they were self-managing the property, even while raising a family. These weren’t single “straight-out-of-college” kids with all the free time in the world after work (At age 37 with four kids ranging in ages from 10 to 2 myself, I barely even remember being to come home from work and relax 😛 ). They were folks with other commitments who took the leap and were making real estate investing work for them.
Now, we not only had an example of someone who was investing in rentals locally, we also had an idea of a good geographic area to target. I followed up with them after the meetup, asking about how they found their property, what sort of financing they used, how they set and collected rent, etc. We spent weeks doing our own research, reaching out on local investor groups online and running numbers through spreadsheets.
We pored over listings on Zillow, Craigslist, and after reaching out to an agent, the MLS for a few weeks. After analyzing around 50 properties, I walked through about 5 properties – even bringing my 10 and 6 year old sons with me on one trip. We saw some poor workmanship, sketchy tenants, large and loud dogs, and walked into a few uncomfortable situations. It was certainly a learning experience on how realtors dress up houses with certain camera angles and gloss over problems with properties. However, one of the houses really caught my eye, mostly because nothing was wrong with it.
Taking the Leap
It was an early 1900s brick duplex in an area close to the main street of the town. The current owner had been using it as an office for the last 25 years and had maintained the home pretty well. My agent informed me that someone else was writing an offer on the house that night and they also had another showing that night with folks who intended to make an offer as well.
As I got into the car to begin the 30 minute trek back home, I got on the phone with a lender, insurance agent, and my wife. Later that day, we had all of the pre-qualifications that we needed and decided to pull the trigger.
That evening, our agent called and said that the owners were asking for everyone’s “highest and best” offer by 3 PM the next day. I ran the numbers some more and reckoned that even offering a bit more than asking, the numbers would still work such that the property would cash flow. This was a 2% rule property – the monthly gross rents were 2% of the purchase price and it would have taken a lot for it to be a “bad deal”. We made the best offer that we felt comfortable with, fully prepared to move on if we didn’t get the property.
Having made our offer, we got back into some more pressing matters – packing the van for our beach vacation that we were leaving for that evening! We were about 10 minutes onto the highway when we got the call from our agent to tell us that the seller had accepted our bid!
Over the next few days, we took a few minutes out of our vacation to get insurance lined up and get the home inspection set up for when we returned. We then kicked back and celebrated the fact that we purchased the first building block in our rental empire – one that would cash flow $300 per month (or so we thought, more on that later).
So what did we do to become real estate investors?
- We educated ourselves with great books, podcasts, blogs, forums and other online resources. Instead of spending our evenings vegging out with Netflix, we read and listened and took notes.
- We networked with locals who were pursuing financial independence as we are. We got out of our comfort zone as natural introverts and went to meetups. We listened to others’ stories and accomplishments and looked for ways that these wins could be applied in our own situation.
- Finally, all of the education and networking is for naught without being willing to take action and jump. We didn’t have a set of instructions or a guarantee in stone that this was a sure thing. All the same, we didn’t let our fear of the unknown paralyze us.