This is the first in a series of posts chronicling my experiences during the process of purchasing, rehabbing, and eventually selling a house as an investment. You can find the rest of the series here ( part 1, part 2, part 3, part 4 , part 5, part 6). Hope you enjoy it!
I want to let you in on a little secret… I bought a house! Not a house to live in, but as an investment. I know, I know, you thought my secret was that I’m the secret love child of Charles Lindbergh and Betty White.
Today’s post will be the first in a series documenting why and how I did it, and what I hope to accomplish by investing my hard earned money in real estate, so you can learn along with me.
So let’s start the journey…
Why I Decided to Buy a House
Over the last several years I’ve become more and more disaffected with the stock market. In some recent years the market has gone up substantially, and in some it has gone down, but over the last decade plus, the stock market has remained essentially flat, which means my investments really have had little to no growth at all.
I finally got to the point where I’ve decided to take the bull by the horns and find a way to do something about it.
I’d been toying with the idea of investing in real estate for a few years, and even had my IRA converted to a Self Directed IRA so I could use that money specifically to invest in real estate.
My biggest concern with a real estate investment was that I didn’t want to take out a mortgage to buy a house because I didn’t want the pressure or the extra risk that comes along with investing in real estate with borrowed money. I wanted to do it debt free, which goes completely against what so many of the real estate “gurus” teach about real estate investing using the leverage of “other people’s money” (read debt).
As I see it, investing in real estate without debt gives me a huge advantage because it opens up more options and lowers the type of risk that got so many people into trouble in the past few years.
I decided I could buy a house, fix it up and sell it (flip it), or rent it out and make a steady income from it. Either way the risk is greatly reduced because I don’t have to worry about debt payments hanging over my head every month and whether or not I could meet those payments.
But would I have enough cash to actually buy a house and renovate it?
There was only one way to find out. I called my friend and realtor Sherril and asked her to put together a list of foreclosures in three different zip codes near my home. My goal was, of course, to get a solid house that maybe needed some work, and get it as cheaply as possible.
I wanted to keep the price as low as possible so I would have enough left over to fix up the house, plus an extra cushion in case something unexpected came up. So we chose several houses from the listings that fit my criteria and over the next couple of weeks we looked at around a dozen or so properties.
Some of them were in pretty good shape, were in a decent neighborhood, and had been recently renovated. Most of those were priced higher than I wanted to spend because I didn’t think I could get a reasonable profit if I decided to flip the property.
We also looked at some that were in terrible shape. We even walked into one where the popcorn ceiling and the walls were actually stained brown from cigarette smoke and smelled so badly of cat pee mixed with smoke that I actually had to hold my breath while I was inside. Nasty with a capital “N”.
That one would have had to be completely gutted just to get it livable again. NO THANKS!
We finally found one that looked promising. It was a foreclosure (sorry, I should have taken a “before” picture) that was owned by the bank. They were asking $49,900, which is a price I could swing, but I wasn’t going to pay that. I knew the bank needed to get rid of this house to get it off the books and that they would be thrilled to actually have someone with cash to buy it quickly.
So after a couple of offers and counteroffers, the bank’s bottom line was $42,900. I accepted the offer and wrote a check for $500 earnest money that would be refunded if I elected not to go through with the deal after thoroughly checking the place out. My next step was to do the due diligence necessary to find out what it would take to get the place into better shape so I could sell or rent it.
So that’s it for the first installment. In the next installment I’ll talk about what it took to get the place checked out from top to bottom so I would know exactly what I was getting into, and some of the surprises along the way.
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