I was fortunate to grow up around the real estate business with my dad being a real estate broker/salesperson. As a kid I remember helping my dad with his business by stuffing envelopes, passing out marketing materials (notepads, flyers, and calendars) in the neighborhoods that he specialized in, and setting up/taking down signs for open houses. I would go through his library of real estate books and read as many as I could, especially the ones with a focus on real estate investing. I also loved playing the game Monopoly and was fascinated by the wealth creation that investing in real estate could provide.
In my senior year of college, while working as a part-time finance supervisor at UPS and waiting for the classes that I needed to graduate, I decided to get my real estate salesperson license. I began selling real estate part-time and had early success, selling 2 properties in the first 3 ½ months of being in the business. After graduating with my B.S. in business administration (option in finance), I left UPS for an opportunity as a full-time financial analyst at World Savings Bank (Golden West Financial). I continued to sell real estate part-time and obtained my real estate broker’s license. I found it difficult to moonlight as a Realtor and as the real estate market began to turn ahead the financial crisis, I made the decision to stop selling real estate, focus on my financial analyst job, and go back to school to get my MBA. I had thought that my financial analyst job would provide stability and predictability as we were entering the recession, though it did anything but. With the health of Marion Sandler (the co-CEO of Golden West Financial) deteriorating and signs of the real estate and lending cycle peaking, Golden West Financial sold to Wachovia in May of 2006. Shortly after the deal closed in 2008, Wachovia ran into liquidity issues and as credit default swap spreads widened, panic ensued, and there was a run on commercial deposits. Wachovia was forced to sell Wells Fargo in October of 2008. My job was displaced during both of these mergers and completing my MBA in finance while going through them was an enormous challenge.
Emerging from the crisis, I was finally in the financial position to purchase my first property. In September of 2011 I purchased a 2 bedroom 2 bathroom condo in Walnut Creek, CA for $285,000 from the original owner/investor who was also the listing agent. I wrote an offer with my dad listed as my agent and he kicked me back the commission net of his broker split and taxes, which helped cover my closing costs. Shortly after purchasing the property I was able to refinance my loan to a 3.50% 30 year fixed rate mortgage. I later took out a home equity line of credit for $30k at a fixed rate of 4.00% to use for upgrades/improvements, though I barely drew on it. The 4.00% rate is good until November of 2018. In hindsight, I wish that I had gone with a $100k line of credit to provide me with more liquid and inexpensive access to capital to reinvest in more investment properties.
I slowly made upgrades to the property over the 4+ years that I lived there, which were partly funded by me “house hacking” (renting out the 2nd bedroom) for a portion of the time. I’m pretty handy and was able to do most of the upgrades myself, which saved me a lot of money. Some of the upgrades include: crown molding, recessed LED lighting, ceiling fans, bamboo flooring, baseboards, smart thermostat, smart smoke and carbon monoxide detector, painted kitchen cabinets, kitchen counter backsplash, fireplace tile and mantel, door handles, toilets, sink faucets, shower faucets, vanities, shower resurfacing, shower doors, quartz vanity counter tops, stainless steel dishwasher, etc.
In May of 2016 I moved in with my girlfriend and converted my condo to a rental. I began marketing the property for rent and after carefully screening applicants I found a good fit in June of 2016, renting it out to tenants for $3,000/month. This past weekend marked my 1 year anniversary of renting out the property. After meeting with my tenants for an annual walk through and to sign a 12 month lease extension, I decided that I would share this story of how I became a real estate investor as well as the cash flow analysis below.
Please note that I chose to exclude cash-on-cash return from the cash flow analysis since it was a principal residence to investment property conversion that I’ve owned for almost 6 years. I also excluded an IRR calculation since this is a simple cash flow analysis and I didn’t model in an asset disposition.
Though it took me longer than I had planned to officially become a real estate investor, I feel good about where I’m at and am positioned well to acquire more investment properties and grow my portfolio.