“I want to know everything you can teach me about real estate investing,” were the first words spoken by a gentleman who walked into my office.
He said he had seen the words “investment property” underneath my office picture and wanted me to help him get underway.
He said he had talked to a lot of Realtors but most did not understand the nuances of investing and none of them owned their own investments. So he was thrilled to meet someone who could talk his language. He was a hard working entrepreneur and was willing to do anything it took.
He was interested in hearing how I got started.
I told him the story of my being young and naïve. After buying and selling a city lot when I was 15, and then a duplex when I was 18 – which worked out well – I then moved to the big city of Minneapolis. I bought a fourplex in downtown inner city Minneapolis. This big city investment was a huge change from the small town I grew up in and I got a rude awakening into the city life.
I told him how this fourplex led me into a world of tenants and drug problems, domestic violence, hookers, and homeless people breaking in to sleep in the basement. There was vandalized laundry equipment, missed rents payments and more excuses than anyone could possibly imagine.
I also told him it was a great experience and the property was virtually an ATM machine that kept spitting out cash flow every month. While I would not suggest this route to anyone, I cherished the experience. It gave me a thick skin and helped me understand the good, the bad and the ugly aspects of investing.
His response surprised me
He was actually inspired by my story, and that surprised me.
I almost fell out of my chair when he looked at me and said, “Well I see you are still investing, so I want to do that.” I told him I had found easier ways to invest than the inner-city fourplex example. “Please understand,” he said. “I am in it for the long haul. I want to learn everything about this business and if buying a property in an area most people will not sounds like a great way to learn, and if it is a big money maker, I am all in. “
First property was a triplex in downtown Minneapolis
He wanted to learn everything there was to learn about the Section 8 programs.
He had attended local real estate investment association meetings and heard about these government-sponsored assistance programs that paid rents directly to the investor.
This was his first objective.
This inner-city dwelling was a great location to implement this.
This property was indeed an ATM machine that generated huge cash flows for him.. It also gave him experience in managing tenants with the diversity of nuances that arise. What he learned from this experience, along with the large cash flow, enticed him.
So much so, that he said, “I want another one just like it.”
So we found him another downtown triplex and repeated it.
His scare over taxes on his increased income
I will never forget the day he called as excited as a little kid. He said, “Wow! You were not kidding about these tax deductions and depreciation benefits. They are awesome. I came out way better than I ever anticipated.”
This call came in after the first of the year, and it was now time to get the dreaded income tax prepared. With the increased income he was generating he was worried Uncle Sam was going to take it all away.
We revisited our conversation on the tax benefits of the property tenant business. I always expected people to gloss over this part as they would rather have a root canal than talk about taxes. Now, after having done his taxes, he understood the concept of having positive cash flow while showing much less income, or even a loss on paper, with the tax deductions and depreciation.
Next investment property: Two townhomes
With knowledge from the first two properties, and $1,100 a month in positive cash flow, he was due for an introduction to some much easier, less-stressful investments.
We found incredible opportunities on a townhome project. We decided on a buy-to-rent strategy and we were about to purchase two townhomes. (Note: there may be rules governing how many properties a common interest community – or homeowners association – can have as rental property.)
These two properties generated another $600 in monthly cash flow and proved to be a much more simple investment.
The quality of the tenant was much better and the fact he did not have to worry about any lawn care or snow removal was appealing to him.
On to a four-unit townhome building in an upper-class subdivision
This investor was graduating through the property classes.
The ease of running these newer buildings with great tenants was appealing.
The cash flows were less, but the trade off was higher appreciation of his investment.
He loved the balance within his portfolio that gave him huge cash flows in his triplexes and higher and more stable appreciation in the nicer properties.
Five years have passed and he now has his own investing business
Having acquired a vast knowledge of investing within the landlord-tenant business and having a nice mix of cash flow and equity growth, he went on to do more. He did fix-and-flips, as well as wholesaling.
Five years have passed, and he is now in repeat mode.
He continues to exercise everything he learned and is helping others to do the same in his very own investment business.