You might want to read the About Me page before you read this post. The About Me page explains why I choose investing, real estate in particular, to enhance my retirement years. In this post I intend to provide those interested some thoughts on my successes and failures along the way. I firmly believe a basic knowledge in investing is the only way to overcome the obstacles we all face in this economy. As Robert Kiyosaki puts it in his famous book, “Rich Dad Poor Dad”, you need to learn to get out of the “rat race”. Here, I’ll give a glimpse of my journey in hopes it will help a little with your own.
The best thing I did starting out was to learn how others were doing it right. Real Estate Investing (REI) is not hard at all, but even small mistakes can be very costly due to the large sums of money involved. Most books I read and folks I studied under said the same thing, “Use proven methods and it will go smooth”. They were right. I read the books recommended on BiggerPockets.com, did the Rich Dad Poor Dad beginners course, and took a couple other short courses. I learned to analyze deals, proper due diligence procedures, manage rental properties, and tenant screening. So far, only two tenants have screwed me and those were the only two I let rent when they didn’t pass screening. I was a sucker for their sob stories. Make good protocols and stick to them and try not to let emotions make decisions.
https://marshlandinvestments.com/
Lots of people think owning rental property is hard. They have heard all the landlord horror stories. Keep in mind as you read on that I started all this while working my full time job as a network engineer, with lots of travel and doing scuba training and dive trips on the side. I am the furthest thing from a work-acholic, not exceptionally bright, and really enjoy my leisure time. REI is just not that hard or time consuming, if done right.
I started out by buying condo townhomes listed by HUD. This was in about 2011 when there where a lot of forecloses from the 2008 real estate crash that HUD had renovated. They were a good deal at only 10% down and turn-key ready to rent. I ended up with three of them. At about the same time, I moved from my existing home and rented that out. Once they all started cash-flowing, I bought a trailer on a lot close to Folly Beach. I had to pay all cash because you can’t get a mortgage on a trailer, but well worth it due to the location near the beaches.
After renting that trailer for about two years, I sold it at a profit and held the note creating some steady passive income.
I learned the key to good cash-flow with rentals is to get the max mortgage with the minimum down payment. Let the bank due most of the investing with me getting almost all the profit. Doing this allowed me to start accumulating cash for a bigger purchase.
I had a great real estate agent that knows exactly what investors are looking for and that is essential to success. There’s a big difference in buying investment property and a home to live in. My realtor found a great quadraplex for sale that was exactly what I was looking for. The more units in a property the better the cash flow. This property had a lot of differed maintenance and rents where way under market value. Immediately after purchasing, I started catching up on maintenance and building better tenant relations. The management firm hired by the previous owner did little maintenance, so the tenants wouldn’t bother reporting problems. I encouraged them to report problems and fixed them right away. By doing so, they didn’t mind as much when I raised their rent!
The quadraplex started cash-flowing within just a few months. Renovation time! When a tenant moved out, I would renovate that unit bringing it up to the standards of the surrounding community. This community was on the way up allowing for some decent upgrades. On a couple of the renovations I was lucky to have an existing tenant who’s lease was coming due and they wanted to stay, so I would offer them the newly renovated unit to get them out of their existing unit so that could be renovated. This worked very well. Didn’t take long to get all four units renovated and fully up to market value. To illustrate how well this plan works, when I first bought the building rents where at about $600/month and all the tenants hated the landlord. After only two years, rent was up to $1200 and all the tenants loved me. The old method of “slum lord” is not the best plan!
At this point in my investing career I have three townhomes, the quadraplex, and a note. Great cash coming in every month and lots of tax advantages. How could it possible get any better? I was about to find out.
Got a call one day from the mortgage broker that arranged the financing for the quadraplex asking me if I wanted to sell. I told him not really, but I’ve learned to hear out all offers. Turns out, the potential buyer is close to the time limit on a 1031 exchange. For readers that don’t know what a 1031 exchange is, it’s a way to defer taxes on the sale of a property by buying another one with the proceeds, but you have a limited amount of time between selling property and buying the next one. At the time, the market value of the quadraplex was about $400k. This guy didn’t want to dicker, so he offered $500k right off the bat. I could not turn that down.
So, bottom line for the quadraplex, in the two and and a half years I owned it, I cleared about $60k NET in rent and over $100k on the sale before taxes. Now with more cash in the bank, it’s on to other investments.
Thought I’d try some flips. Having enough cash now, I bought a single family house for cheap from a wholesaler. If you don’t know, wholesalers are those guys with the bandit signs all over saying, “We buy ugly houses for cash”. It needed major work, but I had a good crew. We did make a little profit on it, but not much because I have a tendency to want to make it right and nice. Our renovation costs where too high. But, it was beautiful and the buyer loved it!
After selling that one I made the funist mistake I’ve ever made. Bought an old Rosenwald School, the Nine Mile Fork School on Wadmalaw Island, SC. This one was built in 1929 and they are fairly rare. Go here to get the history:
https://en.wikipedia.org/wiki/Rosenwald_School
After we freed the slaves in the US a lot of folks beleived they should not be educated. What could possibly go wrong? Fortunately, not everyone thought that way.
My great team and I made this thing into a work of art. We restored the great room and bedrooms to keep the original woodwork and floors, but gave it luxury baths and kitchen. But again, I over did it. Our budget was $60k and the schedule was 6 months. actual cost was $114k and it took us two and a half years! My team made some money, but I personally took a lose. But no regrets at all as it was a true labor of love. Check out the finished product here:
With the cash I freed up selling the school house, I bought another quadraplex. Doing the same plan with it as the last one and it is working out well. I’ve renovated all four units and getting market rent.
The next project is even more fun. Purchased a seven-unit apartment building on the island of St. Croix in the USVI. It’s a block from the beach and walking distance to a lot of great restaurants, bars, and dive shops. We have it as a mixture of Short Term rentals (STRs) and Long Term Rentals (LTRs).
This was purchased with a 1031 exchange and a partnership. I sold all the townhouses tax free and used the profits for 50% ownership. I have a partner owning the other 50%.
So far it’s doing okay, but no profit yet. Parts and contractors are expensive on St. Croix and the salt air rots everything. We hope to hang on to it long enough to see some equity build up and some cash-flow from rentals. Now this one is really fun! I love deducting these business trips to the island off my taxes! Great scuba diving here, by the way 🙂
If you would like more info on my processes or anything about real estate investing, please leave a comment. I love talking about this stuff.
The Blog of Tim Schmitz 
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