When I started my Real Estate career in 2017 I had no idea where it would take me. Now, 6 years, 200 closed transactions, and 2 rental property purchases later, I am happy that I took the entrepreneurial leap from my W2 Job.
The first 3 years of my real estate career, I, like a lot of other agents, was flying by the seat of my pants. Searching for the next client to help buy or sell a house was the bane of my existence. With hard work, long nights, and endless cold call sessions I was started producing around 20-30 transactions for each of the first 3 years. Years 4-6 were the spoils of all the hard work of those first couple of years. I now had a book of business, returning clients and some investors that I worked with regularly. The 20-30 deal a year turned into 40-50 deals a year. Through 200 sales transaction in the real estate world you can learn a lot. From what style of homes have what issues, how much the average sewer-line, roof, foundation repairs costs, what makes a house look great and what makes a house look bad, to mortgage options, creative financing, and contract structure. I was sponge and really absorbed all of the knowledge I could from every transaction.
In late 2020, my wife and I bought our first home. The home that we bought we previously rented for the 3 years prior. Being an off the market deal and being that the seller didn’t have to pay any commission we got a pretty good deal. We paid about $80,000 for the house and at the time it was most likely worth about $100,000. We bought the house on an FHA loan with 3% down and got the seller to pay for some of our closing cost. All-in to close we brought right around $4200 to the table. Our monthly payment went from the $850 in rent to $645 in PITI (Principal, Interest, Taxes, Insurance) We were so happy we made the jump and to be completely honest lucky it worked out. At the time we didn’t have much money, and we had to work on our credit for like 6 months to get it up 20 points before we could actually purchase a home.
Fast forward to fall of 2021, our oldest son just turned two and our second son was due in November. The 3 bed 1 bath 1,000 sq ft home we just bought was getting a little tight. When we bought the house we had told our selves that we would keep it for a year and then buy something a little bigger. This would keep us with in the 12 month primary residence FHA guideline. So we bought a second home and moved in. Now we had to do some work on the old house in order to rent it out for top dollar. at the time we owed about $76,000 and with the crazy appreciation we got in 2020 and 2021 the house was now worth about $115,000 so we took out a $10,000 (HELOC) renovated the kitchen and added a laundry room and painted the interior of the home. Not a lot went into this reno but we wanted it done quick and so we could get someone in there. By November of 2021 we had a 12 month lease for $1200 a month. We had done it. We secured a piece of real estate with very little money down and made it a cash flowing property.
After this success we were hungry for the next deal. Around April of ‘21 I found it. One of my clients I was actively working with found themselves in foreclosure and the houses had actually sold at the sheriff sale. After talking with them they allowed me to purchase the redemption rights to this property for $1500. I will talk more about redemption rights in a future posts but this essentially means I now had the legal right to pay off the foreclosure judgement of about $90,000. Now it was time to find the money to pay off this judgement and rehab the house. I found a hard money lender that would do the loan at 15% down ($13,500) with closing costs around $5,000 and he would 100% finance the rehab of $35,000. Now that I found the money I still had to come up with $18,500 in order to close this deal. We had just bought our the second house only 5 months prior to this and we still hadn’t recovered our saving from the 20% down payment for that house. Knowing that this was a great investment I had to find a way to buy it. If you remember, the first house we bought had gone up in value quite a bit and at this time we only owed about $86,000 on it so I knew I had equity in it. We refinanced that first home. The appraisal came back at $135,000, I was able to refinance at 80% of the appraised value this gave me $108,000 to pay off the first loan of $86,000 ($76,000 + $10,000 HELOC) and put about 19,000 in my pocket after closing costs. Doing this gave me exactly what I needed to close on this next deal! I was excited and pulled the trigger.
We purchased the house and started the renovation. 6 weeks later we were finished up and moved a friend in for $1600 a month while he was searching for his first home purchase. I still had to refinance out of the hard money loan and this was into late summer of 2021 when the fed kept boosting interest rates so I was only able to refinance at 75% of the $170,000 appraisal. This $127,500 paid off the $112,000 hard money loan and after closing costs I was able to put about $12,500 back in my pocket leaving about $8500 still invested in the house. The new mortgage was a little over $1300 so we were now cash flowing a second piece of real estate.
We own 2 rental properties that both have good paying tenants and we cashflow on average about $100 a door. On top of that I will be able to depreciate the rehab that we put into the property on my 2023 taxes and the tenants are paying down my mortgages. Essentially I only have about $9,000 invested in these two houses and they pay me $200 a month and gain more and more equity every single month.
It’s not all butterflies and rainbows. I did run into some shortcomings that were learning experiences that I won’t forget. When we refinanced the 1st home in May (to buy the second rental) the new payment skyrocketed from $645 + $200 Heloc to $1001 a month. On paper this put me in the red of about $30 a month. Knowing we had to fix this we raised rent Dec ‘21 to $1,275 and dropped the lawn care from the lease. This now puts me at $80 cash flow a month. But for 7 months I was losing $30 a month on this property. The second issue I ran into was the foundation on the 2nd house. While my friend was living there, at night he could literally hear the foundation settling or shifting. There were some pretty significant sheetrock cracks and so I went ahead and had a foundation expert look at the foundation. He told me that we should keep an eye on it to see if it moves anymore but that if it needs to be rectified it will be a $9,500 ticket. Refinancing without balancing the new payment with the target cashflow could have been worse than it was but I will make sure to balance all my numbers before pulling equity again. Buying homes with out inspections or repairs is always going to get you a deeper discount on the property but you may end up paying that discount back in the long run with unforeseen problems.
All in all, I wouldn’t be where I am today if I wasn’t a real estate agent. The amount of knowledge I have accumulated over the years has really opened my eyes to the possibility of what real estate can do and I am telling my story to possibly open someone else’s eyes… You do not have to be a real estate agent to make this work for you. I work with a number of investors that buy and sell property through out the year and am always learning more from there. If you are interested in learning more about what it will take to get you into the real estate investing game reach out to me and we can set you up with a game plan!
I am making a big point this year to consistently push out this newsletter so if you would like more information about real estate, investing, and wealth building, subscribe below.
Riley Ringgold
