I had a lawn mowing job for a local developer when I was 15. I mowed all the land he was developing into plots for home building sites. Watching the roads go in and seeing the land take shape inspired me as a teenager.
One day after my mowing was done, I was driving my garden tractor past the developer’s office when I decided to stop in and ask about buying a property.
I thought this was a great way for me to save money and build equity at the same time, so I bought (thanks to my dad who co-signed) a city lot for a single-family home for $7,300. I was the proud owner of my first investment! I arranged a payment plan and made monthly payments to the developer of $70 per month.
Since I was responsible for keeping the landscape mowed and looking good in the area, I quickly planted some fast-growing pine trees around the back of my new lot. They were the very first trees in the area. Three years later, I sold that property for $11,000 and used the $3,700 in equity to buy my first duplex.
On to active investing
As a 15-year-old, I did not know much about investing other than what I learned by watching my very successful dad buy properties. I helped him take care of all the properties, helped with the repairs and renovations, and hoped I would reap the same kind of rewards that he experienced. I wanted to play in this real estate investing game.
As I approached my adult years I wanted to learn more. I understood that while I made a great return on the land I owned for only three years, it was not a purposeful investment. It was a speculative investment that was simply acquired on a hope– a hope that the values would rise.
The duplex I purchased after the sale of the lot provided new lessons. With this income-producing property I could evaluate the income and expenses and be purposeful in my decision-making process. With this working wonderfully I bought a number of duplexes, fourplexes and eventually a number of condos.
The multifamily education
What I discovered with owning multifamily units is they were like an ATM machine. Yes, they spit out a great deal of cash every month. The frustration was the darn machines were always breaking down.
By that I mean they were a lot of work to maintain. The common areas such as hallways, the laundry rooms and even the yards were being used hard by the tenants and required constant maintenance. They also had their share of domestic challenges:
- Neighbors complaining about other neighbors
- Noise complaints by the neighboring property owners
- Bikes being left out on the sidewalks and other neighbors tripping on them
- Complaints about other people parking in tenant-designated spaces
The condo strategy
Loving investments but not caring much for the headaches around them, I decided I could avoid a lot of these issues if I invested in condos and town homes the next time around.
I purchased several of these in a short amount of time. I loved it. I no longer had any lawn care or snow shoveling to take care of. The exterior maintenance was all taken care of by the Homeowners Association (HOA). The stricter by-laws that everyone had to abide by made the management of shared family living much easier. I discovered I had less to worry about with the properties and was feeling pretty good.
Then it happened.
I got the lesson in uncontrollable expenses. Every year the HOA fees were going up, then short sales and foreclosures caused the HOAs to lose money which meant assessments to the other owners. It did not take long to discover that all these expenses were dipping into my cash flow. Not having control over expenses was a problem that I set out to overcome.
Active investor turned passive investor
Indeed, over the years I learned a lot about investing. Up till this point I was an active investor. I did not consciously even know this; I was simply investing and learning along the way.
I attended many investment club meetings and did what everyone said was the right thing at the time. Then, I began to hear this term “passive investing.” I was getting older and was less intrigued by squeezing every dollar from an investment. I wanted to move to investments that were more sustainable with less work. I found this in passive investments where I put property managers in place to handle the day- to-day details.
With passive investments I can simply do my upfront diligence and with a scalable duplicable system I could collect monies month after month without all the headaches. Wow! Getting paid over and over for my upfront work while in the buying process was very intriguing. I am much more interested in working smart than working hard.
Tenants take more pride in single-family homes
I found my passive investing tranquility in turnkey properties.
With years of investing in various types of properties, I found the ultimate promotion I could give myself was the ease of passive investments through single family homes.
With these properties the tenants take more pride in their homes. Just listen to their language, they will invite you “to their home” instead of to “their apartment.” Tenants have a pride in this single dwelling that is all theirs and as a result they tend to take better care of it.
My headaches and expenses are reduced, and more predictable, are more easily controlled, because many of them have been given to the tenants. Small repairs up to $250 in value are the responsibility of the tenant. So is mowing the lawn. No more challenges with multiple families living together under one roof. Plus, my ultimate reason for investing in the first place was for the equity growth. Single- family homes represent properties that the end user is willing to pay retail prices for, so they are my best investments to accomplish this.