How I got started in Real Estate Investing
It started with an intense desire for home ownership.
Does this come from a selfish need to “own” things, or am I just a savvy investor and know that the numbers work better for home ownership vs. renting?* It could be due to spending a large portion of my childhood in rentals. I vividly remember an afternoon where I added up the amount of rent my mom had paid over several years in one of the apartments where we lived. I was shocked at how we/she could have owned something, but instead, would end up walking away with nothing. For some reason, this realization had a major impact on me. I'm sure my mom was thrilled that I kept pointing this out to her, especially since I was in my fun teenage years. Seeing those you love struggle to survive financially will motivate you to find an easier way for them, and for you.
I remember when I decided that it might be time for me to stop renting and to purchase my first home. I was out of college, had a steady job at Southern Company, and it looked like I would always call Birmingham home. The early 2000's were also a good time to buy. I was 25 and found a newly constructed townhome at Hidden Creek in Pelham. This seemed like the perfect choice for my first-time home purchase. I was still very nervous about buying! Of those I consulted about this decision, there was a co-worker, who was also pro-homeownership. His encouragement was the nudge I needed to take the leap. I went for it! With a bonus that year from Southern Company, I had enough for a down payment on this townhome. The purchase price was $90k.
After living at my new townhome in Pelham for about 2 years, I found that Pelham was too far away from my work and friends. I wanted to live closer to town. Also, I wanted to pay off my student loans, and I had 2 friends moving into a 3 bedroom rental house in Homewood. HA! To be young again…
While living in Homewood, I became a landlord and rented out my townhome in Pelham. That rent covered the Pelham mortgage while I made progress on paying down my student loans. Why did I choose to rent that townhome in Pelham and not sell? It wasn't the original plan. I posted it for sale, but the first person that looked at it asked if I'd be interested in renting it to him first, then selling it to him later (I now recognize that this proposal, along with his bad credit, was a big red flag). I liked the idea of owning a rental property and selling the townhome at a time when the market might be more of a sellers market. There was no profit in a sale at that time.
Once that year was up, I lived in apartments over the next couple of years while saving up for my next down payment (only 3% for investors at the time). It was 2003 when I found the cutest condo in Highland Park! It was a foreclosure; and at the time, foreclosure deals were actually deals. I paid $82k for this 1 BR condo, and after minimum improvements, I sold it for $120k only 2 years later. It was a great market for flipping! And maybe a great time to sell that Pelham townhome.
In the meantime (in 2004), I was having tenant issues at my townhome in Pelham. It was time to learn about the eviction process! It was also time to learn about home repair and renovation. This situation was heartbreaking for me at the time, but I learned so much from that townhome purchase and leasing experience! After some repair work, I sold my Pelham townhome that year and was still able to make a profit. The check I received at the closing table from that first home purchase was eerily close to the balance of my student loans. I used it for that purpose. This was one of those hard life decisions. Obviously, what I wanted to do at the time was to take a vacay to a private island in the Caribbean and go shopping for some fancy new clothes. However, that comes later... much later.
After that, I was hooked on real estate investing! I created Barkley Properties in 2005 and purchased my first official rentals that year, 2 condos in southside and a townhome in Alabaster. It sounds impressive, but I mortgaged all the properties, and the total price for all three was around $130k. I would save up the 3-10% down payment for each property purchase, and any bonus received from my SoCo day job was used towards that goal. It also helps when you don't buy stuff and focus on having good credit. Not to mention, during that time, loans were easy to get even with bad credit. So the market was ideal for an investor.
This should give you some insight on how I got started in real estate investing. Following my real estate investing method of: saving for a down payment, getting a mortgage, and paying crazy closing costs, I purchased two more condos and another townhome in 2006. I loved finding deals and managing rentals. I would put as much money as I could in my 401k and real estate during that time. Once I could save up $3k, it was time to shop for another property.
Please share how you got started and what fueled your passion for real estate!
*I do want to point out that there are several examples of when it is wiser to rent vs. buy. I have been a tenant when it made sense for me, and I have several tenants over the years where it works best for them. Even after investing in real estate, I was a renter in three of my homes over the years while saving to purchase the next rental or flip.