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Our Real Estate Investments–Four Properties and Counting

820113_47279605.gifWhen Rob and I set out to invest in real estate, we had a longer term strategy in mind. Our plan was to buy, rehab and rent properties, with the goal of generating a significant stream of income. In this article, I want to write about what we’ve accomplished during the last two years. As always, I’ll attempt to highlight mistakes Rob has made along the way.

Two years ago, Rob was new to real estate investing. In a way, so was I. Although I had bought and sold properties for several years, my purchases were sporadic and nearly always for purposes of re-sale. So for me, it was almost as much as a learning process. It still is. We now have a couple of years of experience with purchasing, renting, managing, and even an approach to selling. Our plan was not to buy 50 homes at once or to quit our jobs and become full-time real estate investors. We both have our day jobs–for now. But in the first two years, we think we’ve learned a lot by doing and have made significant progress. But that too is a process.

We’re up to four rental properties with a total value of about $600,000, and we’re looking around the corner at the next buy. Here’s a look at the first four.

In for a Penny. . .

In September 2005, Rob and I made our first two offers. We had discussed buying property for a couple of months. So, we set aside a weekend to look at potential real estate investments. Our main purpose was to learn. We wanted to find out as much as we could about current sale prices, neighborhoods, the condition of homes in the neighborhood, schools, and rents. We primarily focused on foreclosed homes–bank owned and HUD owned. We also looked at privately owned, listed properties, often vacant homes or homes that looked like they needed some work. We checked out a couple of multi-families owned by other investors.

We settled on single-family homes for a few reasons. I would like to say that this was the result of a sophisticated analysis of returns, but it likely had more to do with accessibility of the type of real estate investment. Rob and I were both homeowners. We could look at a single-family home and say “yeah, I could live here.” Also, although we planned to rent the properties, I was still largely evaluating the homes based on estimated profit in reselling. For us, this choice was the right one, at least for now. Single-family homes are easier to self-manage part-time. And they are easier to sell than multi-family properties.

From 30 or so homes, we identified several potential investments, but three of these homes were HUD properties that were open for bid the following Monday. All three seemed to be potentially good values. We decided to make a bid for two of the properties. As I told Rob, “we’ll be lucky to get one.”

The next day, we found out that we had bought two homes. I was excited. Rob was, well, a bit queasy. (Rob’s Mistake Number 1: Trusting my unsupported speculations concerning future events).

The Ranch and No Basement

Property Number 1 was a smallish two bedroom, two bath ranch built in 1998. We’ll call this one the “Ranch.” Property Number 2 was a three bedroom, one and a half bath two story built in 1991. We’ll call this one “No Basement.” (To eliminate the suspense, it’s because this one had no basement).

The Ranch didn’t need much. It really was in decent shape. The usual cosmetics were required–paint, some carpet, appliances, and a thorough cleaning. Also, somewhere along the way, a third bedroom was converted into a separate dining room by opening an entry directly to the kitchen. A little framing and drywall and voila, we had a three bedroom.

No Basement was older, and was in pretty rough shape. We completely remodeled the kitchen–new cabinets, sink, countertops, appliances, the works–and replaced the half bath. Wallpaper and remnants of wallpaper were everywhere. While the larger remodel projects present more challenges, I always like the part about improving the property, both for value and the neighborhood. Here are some pictures of the end result:



The Problem Child

It really was inevitable. We were bound to buy a house with the unexpected problems. So Property Number 3 presented itself. We’ll call this one the “Problem Child.”
Rob and I closed on the Ranch as soon as we could line up financing, but we pushed No Basement out as far as the contract would allow. Of course, the idea was to get a renter lined up before having to start in on the No Basement rehab, and we did. We closed on No Basement and were hip deep in the rehab process.

Then this nifty four bedroom home caught my eye. I called Rob and started with the phrase that would begin several other conversations thereafter: “There’s this house….”
And there it is. I admit it. I like buying. It’s kind of like being the successful bidder on E-bay. (Bringing us to Rob’s Mistake Number 2: Getting caught up in my buying frenzy).

Problem Child was a nice home–four bedrooms, two and half baths, and built in 2000. It was considerably larger than the Ranch and No Basement, had some issues and took a bit longer to complete. No majors though, or so we thought. The next year, we would find ourselves replacing the six year old air conditioner and, not long after, the seven year old roof. Problem Child is certainly our reminder to allow for the unexpected.

The Loft

After the rush to pick up three houses and going through the rehab and rental process into March 2006, we took a break. Limited cash was certainly a factor. So were those pesky day jobs. But we certainly intended to buy another. So, this last spring, we bought the “Loft.”

The Loft was a three bedroom, two and a half bath built in 2002. Again, not a major rehab, given the age of the house. The property had two particular advantages. It had a loft that could be finished into a nice fourth bedroom, and it had a semi-finished full basement that we could refinish to add to a bunch of extra living space. We expect, at least for now, that the Loft will be our best investment to date.

Of course, there’s always the possibility of having to rename it as “Problem Child 2”. We’ll see.

I’ll be circling back with some additional articles to talk about the numbers (purchase price, costs, rents, and returns), our experience in the rental process, how we marketed the properties, and where we expect to go from here. We will certainly be looking to buy more properties, but we have no immediate purchase plans. Then again, “there’s this house….”

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