Written by: Victor Sutherland of The Group Real Estate
My journey from buying my 1st house in the worst housing market to financial freedom through Real Estate!
My wife and I bought our 1st home at the top of the housing bubble in Meridian, Idaho in 2007. I was employed at the time by a building supplies company and we had just moved from England, which we called our 1 year honeymoon since it was our first year of marriage. Within months of moving to the Boise, Idaho area I could see that the housing market was struggling since we were slowing down so much on the number of building supply deliveries we were doing and having to let people go almost every week. We all had hopes the market would turn quickly but of course it didn’t, and 9 months later I was searching for jobs knowing it was just a matter of time before the store would close. I was lucky enough to find a good job and just 2 weeks later heard they officially closed their doors. The not so lucky part was the new job was in another town so we would have to move and the value of our home had nearly dropped in half.
Many people we talked to said to just claim bankruptcy since we were just unlucky and shouldn’t be blamed for the market crashing. We didn’t think that was the right way to do things though, so decided to try to rent it out until the market went back up. This wasn’t easy since we weren’t professional landlords and made the typical rookie mistakes of renting it below market value and not looking at it as a business, allowing late payments, and not budgeting for improvements like a rental property should be.
Over the next 6 years I read and studied about real estate waiting for the time when I could make money in Real Estate instead of lose money. During that time the renters paid the mortgage on our Meridian house and we had enough equity to buy our 1st flip, a small 3 bed 1 bath house near downtown Idaho Falls with a hole in the roof. It was a bank owned property so we couldn’t even see the inside before the auction. This house had been on several auctions before I finally convinced my wife to make the plunge. It was scary since we didn’t know how much damage the hole in the roof had caused. This is when we started to learn the value of sweat equity. The internet has made it so you can learn almost anything about repairing a house and watch videos on how to do those repairs. My amazing wife Nancy has watched all sorts of house flipping shows and has great taste so we knew what it would take to get a house to sell. The roof repair wasn’t actually too hard, and the only thing we hired out was the furnace replacement and carpet replacement in one room.
One of the best pieces of advice I got was to not let other people decide how much a house is worth when buying and selling. I was told “If you think you can buy a house for $40,000 and sell it for $100,000 you’re crazy”, but that is exactly what we did on our first flip!
With that profit we bought our 1st four-plex and another house near downtown Idaho Falls. All 3 of these were not in great locations which scared most people off, but by doing my homework I knew they could all sell for higher. The big benefit of flipping a multi family property is you get to continue collecting rent while fixing up the apartments one unit at a time! I liked that idea so also bought a 3 plex and another auction house while getting a home equity line of credit on our personal property. Around this time I had been working at a property management company and loved Real Estate so much I became a Realtor so I could help other people do what I was doing.
A big warning on auction properties, while they can be very profitable, not everybody has the stomach for it. This one wasn’t vacant and I had to go through the whole court process of evicting the previous owner and paying a moving company to show up to move the items from the house. There is also a risk of liens on the property or unforeseen damage so please do your homework before entering this arena!
As for investment stories, this 2nd auction house worked out great when you look at what I had invested into it. I bought it with cash, fixed it up and rented it out, then did a cash out refinance and got all of the money back that I bought it with including the closing costs so I was only invested in the amount of money I paid in repairs!
Every once in awhile you can finance an auction property and we did this when buying a four-plex in Idaho Falls. I had several people tell me nobody in Idaho Falls can get you a loan for a property that doesn’t have a working toilet and sink in the bathtub. I felt stuck until I kept calling and calling until I finally found a lender that could offer a loan that allowed me to pay extra at closing that I got back once it was repaired. That four-plex ended up being a lot of work, but it sure is nice having 4 tenants pay rent and even when it is vacant having the mortgage paid each month!
Quick tip for rookie investors, if you don’t want to do a full detailed analysis of every opportunity that comes available the 1% rule can help as a guide, but on older properties high maintenance costs will sometimes turn an investment from good to bad and most new properties won’t meet the 1% rule but will still be a good investment because of the low maintenance costs. The 1% rule is that if you can rent something out monthly for 1% of what you buy it for then the investment will normally work out well for you. For example if I can rent out a house for $1,000 per month and buy it for $100,000 I would say yes buy it…as long as it doesn’t need a ton of updates.
The great thing about investment properties is that the value of the property depends on the rents, so even if the current rent is low, if you can raise the rent you automatically raise the value of the house. Using this simple strategy in rental properties and flipping houses is how I’ve been able to go from 1 under performing rental property that I bought at the height of the housing bubble and was my only investment property I owned in January 2016 to now owning 4 four-plexes, a 3-plex, a house, and a 2 bedroom condo. I’ve had a ton of help along the way and great mentors, lenders, and realtors. Everybody goes through a different journey and I love being a part of that journey with people!