How it all started!
During a previous post (which got deleted because the website crashed) I promised to tell you exactly how I got my first real estate property. I was researching about passive income and starting trading stocks. Then I came across the book Rich Dad Poor Dad by Robert Kiyosaki. In the book he was talking about Real Estate and how to make money off of it. I was instantly hooked and decided right then and there that I would become a real estate investor. I took all of the wisdom that I learned from that book and talked to my mom and my sister. Together we decided we would start investing. We found ourselves a real estate agent and got to work.
The search is on!
What really hit home in the book was finding a property that was cash flow positive. This can be very different depending on where you live. Luckily our real estate agent was also an investor so he knew what we wanted. When we first started looking in the Chicago area we were looking for a cash flow of $1500 or more. This turned out to be very hard because the only neighborhoods where you could get that were really bad. The properties were not very desirable, so the resale value would not have been that great. Eventually we lowered our expectations to $1000 a month in cash flow. We started getting better properties in more desirable areas around Chicago.
We found one!
Eventually we landed on one in Melrose Park, IL that we liked. It had just been remodeled and was move in ready. When we ran the numbers on it we knew the mortgage would be close to $1900 a month. We knew after checking comparisons in the area that a 3 bedroom 1 bath could get $1500 a month for rent. The 2nd floor apartment was a 2 bedroom 1 bath that could get $1100 per month. This building had a side lot with 3 parking spaces and a garage. We rented the garage for $300 a month to an outside contractor and there we made our $1,000 a month profit. It also had a finished basement that we wanted to rent out.
Now all of the problems!
Buying this property was not without any faults. We initially bought the property because we wanted to sell the side lot and then purchase 1 more property. The lot was 26 feet wide and was not able to built on. Thus selling it was hopeless. Then we wanted to rent out the basement and was told we were not allowed. I pleaded with them and we went back and forth. Their reasoning was that I lived in a 2 flat district and 3 flats were not allowed. So instead of selling the side lot and being $2000 cash flow positive, we were not able to sell the lot or rent the basement. Despite all of this we never had to come out of pocket on anything except for the down payment.
We had a lot of issues with plumbing and the sewer when first bought the building. At one point we had to replace a sewage pipe for $2500. We also had rust get stuck in some pipes causing the hot water to be blocked. All in all we probably spent about $5000 on those repairs. We used the move in deposit and the profit we earned per month to pay for those. $0 money out of pocket!
How we purchased for $1500 down!
After searching far and wide for an apartment building we finally settled on one that was $280,000. Being a first time buyer I only needed to put 3% down. I still needed to show the 3% in the bank which was $8000. But after getting a SELLER’s credit toward the closing costs I only had to pay $1500 at closing! There are also government programs which can put money towards your down payment! Have your real estate agent look into them!
SAVE YOUR PROFITS!
If you want to retire you are going to need more than one building. In order to get more you need to save your profits. Create a bank account separate from your personal finances and save every penny! Once you have saved enough profits then buy a second building. Now you have 2 streams of income going into that account. You should be able to buy the third building faster and then the fourth building even faster. As long as you do not touch that money and let the savings compound in your account you should be able to do it!