I was bored so I bought 8 apartments. Can you blame me?!
The title is pretty close to reality. I bought apartments because I wasn’t satisfied by stock market investing and felt compelled to try real estate. And now I’m not going to stop, I’m going to buy more!
The Mindset Shift
Until a year and change ago, I was all in on stock market investing. Turns out the passive index fund strategy, while absolutely a way to make millions, is painfully slow and boring. In the past year and a half I have consumed a ton of content about real estate, FAR more than I care to admit. All because real estate boggled my mind as an investment.
Could it really be so much better of an investment than the stock market? Hell yes it can be — if you are willing to solve problems and have relentless persistence. I decided I had to try it for myself or I knew I’d always have a lingering sense of lost fulfillment.
Man am I glad I tried real estate investing.
Making the Decision
After months of looking at properties and trying to figure out which of the million types of real estate strategies I wanted to try, I finally decided to go for one thing: the biggest multifamily (apartments) property that I could get my hands on that had value-add potential (I’ll explain value add in another article, but that term is SUPER sexy, trust me). I didn’t have a ton of cash to start out with, but I knew the bigger the deal I could do, the faster I could reinvest by buying more properties.
Not Slowing the Search
I’d been looking at properties my broker sent me for months. I’d walked through at least a dozen. I still hadn’t closed my first deal — but I wasn’t willing to give up. I finally found it, during the strangest of times!
While my wife and I were in the hospital over the birth of our now nine-month-old daughter, while everyone but me was sleeping, I saw a property pop up in my email that I’d seen before. The previous offer must have fallen through! I already knew I wanted to make the offer.
The Ugly Property
It wasn’t anything special. Quite the opposite, in fact. In their current state, the two 1940s, brick fourplexes were sad looking. Overgrown bushes and ugly stumps. Two of the eight apartments needed bathroom/kitchen renovations. One building needed a new roof. Electrical panels were rusted out. Limestone sills were literally falling out of the windows. Two apartments were vacant, one of which needed a renovation.
Who the hell would want to buy that? Me. You bet I do.
The REAL Money in Real Estate
The real money in real estate for small timers like me isn’t in buying expensive, beautiful properties that have nothing wrong with them. These properties, or “A class” properties, rarely make you any positive cash. In reality, you make money in any industry by solving problems — especially when you are willing to solve the problems that nobody else wants. When you find that, think DOLLAR SIGNS.
Think about it this way: would you have a job, if that job didn’t solve some sort of problem for your employer? You got it: nope. All of the nopes.
This might seem like a difficult reality to accept for new investors. There is money to be made in less ugly properties too if you can find the right deals. But the biggest growth will come from properties that you can:
- Get a good deal on with positive cash flow
- Make changes to the property to add dollar value
Taking Action without Answers (even as newbie dad!)
So when my now three-human family got home from the hospital, my broker and I submitted an offer on those eight apartments (actually we submitted two offers, more on that strategy another time). The seller accepted outright. My reaction wasn’t “HECK YEAH” it was more like “oops, now what?” Even after my inspector confirmed that ‘yep, this property needs work’, I decided to go for it.
Here’s the kicker: I didn’t have all the answers. In fact, I didn’t have most of the answers for how I was going to solve problems. I just knew two things:
- I had to get my first deal in order to grow: to create success I can reinvest. Action is everything.
- I can figure out how to solve problems as I go. So let’s do this!
Beginning the Journey to Real Wealth
I’m damn glad I tried real estate investing. And now I plan to do more. In fact, I have a path laid out that gives me the option to retire in my early forties. I don’t get the point of working a 40+ hour week until my late sixties (like most people). Forget that noise.
Don’t worry. I’ll lay out my plan in a later post.
Of course I won’t “retire” per say, I’ll want to keep reinvesting in success. But I will have the ability to only work for myself and work on whatever I want to work on — what ever is growing me at that point. At age 42, only 13 years from now, I’ll still be able to reinvest and grow my income and reduce my tax burden. IT’S GONNA BE AWESOME. And I want to share all of this with you and encourage you to start your own path to reinvest in success.
Apartments Status
As of this writing, I’ve owned the 8 apartments for only 9 months. They are all rented and cash flowing well. The returns, before tax benefits, are at 30% right now (20% cash flow, 10% equity building). Sounds good, don’t it? However, I’ve been reinvesting all the cash flow back into the property so that I can improve it to the point of increasing the property value, increasing the rents, and reducing repair costs.
Over the next year and a half I’ll be raising rents another ~15%, since I bought the property with the rents 40% below market rate. I’ve also put in money out of pocket to cover the big ticket repairs and renovations — while this seems counter intuitive, these items are just additional investments that pay for themselves in the long run (plus everything is tax deductible!).
I’ll go through the numbers in a future post. Happy hustling!
Signing off,
Charlie
