Three years ago, I decided to make
the leap into becoming a real e
state investor. I came to this decision
after several years of researching, reading, and learning about the
process, the benefits, and the potential downsides of being an investor.
I did not expect real estate investing to be a get rich quick path to
wealth. I knew that it would involve hard work and some financial risk.
However, I also strongly believed that investing in property could help
to provide me and my family with a source of income and improve our
financial standing both now and in the future.
How I Bought My Investment Property
Starting out as an investor, I decided to focus on identifying a property that I could purchase and rent out to a tenant. I also wanted to ensure that the rent that I would be collecting on a monthly basis would be more than my expenses (mortgage, property taxes, insurance) for owning the property.
I used a foreclosed home auction to purchase my first property. There were several steps I took to prepare myself to go this route. First, I attended several in-person auctions in my region to watch the auction process and to get an idea of the prices at which the properties were selling. I also wanted to see what types of properties were being auctioned. These first visits highlighted to me that the auction route could present an opportunity to purchase a residential property for a lower cost than I might otherwise be able to if a followed the traditional path of buying a property listed for sale through a real estate agent or by owner.
When I was ready to purchase, I identified three properties that I was interested in and would potentially bid on in the auction. All three properties were condos located in the same city and were being sold through the same auction. Each property was likely have a purchase price within my established budget of $80,000. I ended up winning the bidding for the third property on my list, a 1-bedroom, 1-bathroom condo with just over 800 square feet. The purchase price was $40,000. I was ecstatic about this result. The property had previously been for sale for $65,000. I had purchased the property at a significant discount and reduced my potential carrying costs for the mortgage in the process.
Because my property was acquired for such a low price, my mortgage is very small. I have a 30-year mortgage with an original balance of $32,000. The monthly payment is only $175. I am able to currently rent the property for $645 a month. After including the association dues, property taxes, and insurance, I take home a net amount of $145 a month. This might not seem like a huge amount of money, but it is a positive return that I have been very happy with for nearly three years now.
What I Have Learned
Now I wouldn't recommend this approach, but I bought my property without seeing it in person first. I live in one state and bought my property in a completely different state through an online auction. While this worked out for me, I probably would not do it again and would not recommend it to others. There is a significant amount of risk that you take on for repairs and the condition of the property if you do not get to see it prior to purchasing.
Purchasing a foreclosed home is not without risks. This property required a significant amount of investment to get it ready for a tenant. While the bank had put in new carpet, a new dishwasher, and a new stove, many things were missing or did not work. Worst of all was a missing air conditioning compressor that cost over $3,000 to replace. Additionally, every sink in the home leaked, and the garage door opener no longer worked. I spent about $5,000 getting the house ready for rent after my purchase. This is a great example of the benefit of seeing the property first before purchasing so that you know what to expect in terms of cost and repairs.
What You Can Learn From My Experience
Here are my tips for those of you considering investing in real estate:
state investor. I came to this decision
after several years of researching, reading, and learning about the
process, the benefits, and the potential downsides of being an investor.
I did not expect real estate investing to be a get rich quick path to
wealth. I knew that it would involve hard work and some financial risk.
However, I also strongly believed that investing in property could help
to provide me and my family with a source of income and improve our
financial standing both now and in the future.How I Bought My Investment Property
Starting out as an investor, I decided to focus on identifying a property that I could purchase and rent out to a tenant. I also wanted to ensure that the rent that I would be collecting on a monthly basis would be more than my expenses (mortgage, property taxes, insurance) for owning the property.
I used a foreclosed home auction to purchase my first property. There were several steps I took to prepare myself to go this route. First, I attended several in-person auctions in my region to watch the auction process and to get an idea of the prices at which the properties were selling. I also wanted to see what types of properties were being auctioned. These first visits highlighted to me that the auction route could present an opportunity to purchase a residential property for a lower cost than I might otherwise be able to if a followed the traditional path of buying a property listed for sale through a real estate agent or by owner.
When I was ready to purchase, I identified three properties that I was interested in and would potentially bid on in the auction. All three properties were condos located in the same city and were being sold through the same auction. Each property was likely have a purchase price within my established budget of $80,000. I ended up winning the bidding for the third property on my list, a 1-bedroom, 1-bathroom condo with just over 800 square feet. The purchase price was $40,000. I was ecstatic about this result. The property had previously been for sale for $65,000. I had purchased the property at a significant discount and reduced my potential carrying costs for the mortgage in the process.
Because my property was acquired for such a low price, my mortgage is very small. I have a 30-year mortgage with an original balance of $32,000. The monthly payment is only $175. I am able to currently rent the property for $645 a month. After including the association dues, property taxes, and insurance, I take home a net amount of $145 a month. This might not seem like a huge amount of money, but it is a positive return that I have been very happy with for nearly three years now.
What I Have Learned
Now I wouldn't recommend this approach, but I bought my property without seeing it in person first. I live in one state and bought my property in a completely different state through an online auction. While this worked out for me, I probably would not do it again and would not recommend it to others. There is a significant amount of risk that you take on for repairs and the condition of the property if you do not get to see it prior to purchasing.
Purchasing a foreclosed home is not without risks. This property required a significant amount of investment to get it ready for a tenant. While the bank had put in new carpet, a new dishwasher, and a new stove, many things were missing or did not work. Worst of all was a missing air conditioning compressor that cost over $3,000 to replace. Additionally, every sink in the home leaked, and the garage door opener no longer worked. I spent about $5,000 getting the house ready for rent after my purchase. This is a great example of the benefit of seeing the property first before purchasing so that you know what to expect in terms of cost and repairs.
What You Can Learn From My Experience
Here are my tips for those of you considering investing in real estate:
- Inspect your target property before buying -- if you don't, you might find some expensive surprises after the purchase.
- Look for a property that will provide positive cash flow on a monthly basis -- this is very important to maintaining the viability of your rental.
- Know your limits -- set your preferred price, know what you can afford and what you are comfortable with. Don't exceed these limits.
- Keep learning -- you can never, repeat never, learn too much about investing. Read books on the topic, take classes, and talk with other investors. Take something from every source and apply it to your investing practice.
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