My Real Estate Investing Story
Many people ask me about how I got into real estate investing and why I do it. I started to provide an answer in the November 2021 issue of my newsletter after I bought my second property (which you should subscribe to below if you want to hear about my life, sports, Christianity, and whatever else I want to talk about). However, many of you were not subscribers to my newsletter back then, so I wanted to tell my story to you and explain how I have gotten off to the modest start I have enjoyed so far.
My real estate journey began with a realization. Because of my physical disability of Spinal Muscular Atrophy, I had always qualified for Medicaid. Even when I started my job and began to have some success, I could still qualify for Medicaid services utilizing a program called Medicaid for Working Persons with Disabilities. That program allowed me to earn more money and retain my Medicaid benefits. The amount you are allowed to make varies by state, from what I understand, and Vermont is on the more generous end of that spectrum.
Medicaid benefits are important to me because not only did they provide a second means of insurance after my primary insurance provided by my employer, but they, more importantly, provided personal care attendant hours. While it did not provide anywhere near enough hours for the around-the-clock care that I basically require, it offered a pot of money that I could use to help pay people.
I used that money to pay for people to drive me to work. My parents provide the vast amount of my personal care, which you have no idea how grateful I am for, so I was able to use the hours I did qualify for to help me get to my job to make money. I need people to help me up in order to get ready for the day, get food and drinks, get to work, and generally do a lot of things. I don’t say any of this for your pity, but it is the reality of my situation that set up the ironic problem I encountered.
I kept doing better at my job, and my job pays some commission along with a base salary. I soon broke the upper boundary of Medicaid for Working Persons with Disabilities. My job was going so well that I did not qualify for assistance from people to get me out of bed to go and do my job.
Again, I couldn’t do half of what I do without family support. The other part of my original realization was that my parents would not be able to provide a high degree of personal care forever. I apologize if that sounds morbid, but these are the things that I need to consider. My expenses will skyrocket the day my parents cannot provide this level of assistance.
Consider paying someone even $15 an hour (and it would likely require more than that depending on the shift and other arrangements needed), 24 hours a day, 365 days per year. That comes out to $131,400 per year. I’m not sharing my finances with you in this kind of forum, but I will share that I do not have that kind of extra money every year to pay out-of-pocket for around-the-clock care.
This is obviously a rough number. There are ways to cut costs, such as getting a housemate who provides some care in exchange for rent. I also do not need a personal care attendant while I am at work. I can do my job in the office by myself, so that would take away about 33% of the day from the cost above. However, this is just a calculation so that you can see the kind of expense I will need to account for at some point in the future.
I also work a full-time job, and while I am good at it, I don’t believe I see any six-figure raises in the near future that would allow me to maintain my current standard of living and pay the additional out-of-pocket.
Therefore, my situation led me to consider passive, or relatively passive, income streams. It seemed rather intuitive that I needed to find a way to generate more income through some investment that I could do along with my full-time job and ultimately have some combination of cash flows that would allow me to pay for this future expense.
When I started thinking about passive income, real estate seemed like an obvious choice even though I knew nothing about it. Nobody in my inner circle buys real estate. I know people with some properties, but I had yet to see real estate from the inside. I roughly understood the concept that you need to buy a property that ideally generates some cash flow every month after paying the bills and your mortgage. As you pay off that mortgage, you also build equity, so you are generating wealth in two different ways. As a former accounting major, I remembered that there were tax benefits specifically related to depreciation that would apply to real estate investing, which might also be useful. And, frankly, most of the really rich people that you hear about seem to be involved in real estate. If it works for them, why couldn’t it work for me?
Considering this path would guarantee my final break off from Medicaid, though. Medicaid has strict asset limits; owning a house beyond your primary residence would throw you over the limit. Buildings are not liquid, either, so it was and remains somewhat risky for me to pursue this venture. After all, if I ever ended up in a situation where even the insufficient hours from Medicaid would be enough to get by somehow, I would need to get rid of these assets quickly to qualify. That is sometimes easier said than done, not to mention the money I would receive from the sale that would then have to be paid down really quickly to resume benefits. Beyond that, my job would still disqualify me from Medicaid benefits, so I would also need to quit that.
The way I saw it then and the way I see it now is that I functionally had two options.
1. I could leave my job and find something that paid me less money but allowed me to remain on Medicaid. I could then subsist with a limited number of personal care attendant hours that would really strain my ability to do many of the things that I enjoy. I forget the exact number of hours I was receiving before I was removed from the program, but it would be a difficult existence.
2. I could dive into my job as hard as I could, trying to do everything I could to maximize my earning potential. I could invest those earnings in something like real estate to generate additional revenue that would put me in a position to have adequate care when it comes to that point in my life. I can be grateful for the free care my parents provide right now, but use that opportunity to try to position myself for a better future.
I apologize that my presentation of those two alternatives is quite biased, but I decided to bet on myself and try my best to go for the second alternative. When I first had these thoughts in 2020, I had no idea if I would make it.
In the summer of 2020, I decided to start looking for properties. I started looking at listings in my immediate area. I had two friends from high school who ran a property management company in town, so I figured if I found a property, I could utilize their service to help me deal with these properties. Again, passive income was certainly in the front of my mind, and I don’t really think I have the personality or temperament to deal with that many tenant issues. There was also the practical consideration of being unable to access many of the properties I might want to buy, so I really needed someone to be the face of my investment to help interface with any tenants I would have. I knew from the outset I would need property managers on my team.
How would I go about choosing a property, though? It is kind of funny how it worked out. As I was looking at the listings, I saw two properties I was interested in. They both looked relatively nice, and they were within my budget. I figured I wanted to go see them in person. Nearly every summer, my mom and I have taken a day off and just taken a bike ride around our town. I don’t know how this tradition started, but I was a young kid when it did. In 2020, we decided that we would make sure we went by both of these properties on our ride.
I wasn’t really thrilled by either one. They were fine, but they didn’t quite have the curb appeal I was after at the time (as a first-time investor, looks mattered a lot more to me than the value that can come from potential). I was a little bit disappointed, but I figured I would keep looking. However, as we neared the end of our bike ride, we went down a different street and saw a realtor sign. I didn’t realize this property was on the market, but it was a really cute house and appeared to be a duplex. I took note of the agent, and after we got home, I found the listing online and realized the price was pretty good.
I was off to the races after that. I didn’t have a connection with any realtor, so I just called the listing agent and went from there. I didn’t have a relationship with any lenders beyond having my personal checking account at our local bank, so that is where I went for my mortgage (the rates were competitive and remain so, even in this higher interest environment). I ended up with an excellent mortgage officer I still work with. I didn’t have a lawyer, but the mother of one of my best friends is a lawyer, so she was willing to help me with all of my purchases to this point. There was a bit of negotiation, and I probably should have been tougher, in hindsight, but you live and learn. I was able to grab the house for a little bit under the listing price, and just like that, I was a landlord. I got set up with my property managers, and I had the fever to want to find more houses.
House #1
Keep in mind that we are in the middle of the pandemic at this point in the story. Interest rates are low, and everyone is trying to escape the cities to come to rural places like Vermont. Single-family houses are flying off the market at terribly inflated rates, oftentimes sight unseen without inspections. It was frankly ridiculous. Small multifamily properties were not quite as hot, though, so I soon found my second property.
My second property was in a tougher neighborhood, and it had more repairs that needed to be done. However, I saw tons of cash flow potential, and the negotiations went a bit more favorably for me in this situation. Because more repairs needed to be done and the seller was very motivated to get this done after the house had been on the market for quite a while, we came to an agreement. I bought my house and thought I was ready to start cash flowing quickly.
House #2
Things never quite go the way you plan. I don’t want to get into all the details here, just out of respect for everyone involved, but we ended up having to evict two of the three tenants, and the state of Vermont certainly does not make that process easy. After a long while of not receiving rent, we were finally able to vacate the units. However, as I mentioned, this one needed repairs, and I knew it. In my head, I imagined renovating one unit at a time as people left, still getting cash flow from the other two units, and using that to moderate the expense of that renovation. I did not expect two back-to-back renovations while only receiving reliable rent from one tenant. Renovations are also expensive, and we ran over budget on one of them, so it was another learning experience. Again, I am not getting into all the details of the eviction and what led to that. However, I learned some lessons about inherited tenants through that process and additional questions that might help address potential red flags down the road.
However, even with this ordeal at my second property, I was still chasing properties as much as possible. My current realtor has truly been a saint, helping me go on Zoom tours through properties I cannot physically access. Some of them have been… interesting… to say the least. We went under contract for a property, but some major issues came up with the inspection, so I backed out. We had another property that we were just about ready to purchase, but the seller’s agent couldn’t provide the solid information I needed to put out my most competitive offer, so we lost that one. We had another property where the selling agent literally texted my realtor and told him we were going to win, only to text again an hour later and say that we did not win. As I said, my realtor was trying to help me make this happen, and we were getting close but not quite hitting. He and I are going to get another one. I know it.
At this point, the market in my town was also becoming more difficult for small multifamily. Prices were rising, as well as interest rates. It was just becoming difficult to find anything that would cash flow, and my town is not exactly an appreciation play at this point. It was a tough environment.
I am a member of a handful of Facebook groups related to Vermont real estate. I dabble in them. I watch what people are posting. I am not a significant voice in any of the discussions, but it interests me. I like to learn from others. In one of these groups, a guy I didn’t know mentioned wanting to sell a three-unit property in my town. Knowing that it might be a scam since we all know Facebook is full of those, I didn’t get my hopes up too high. However, this guy got right back to me with a nice fact sheet about the property he wanted to sell off market. I knew the property. I knew where it was, and I knew it was real. I drove by, and it looked just like he presented it, so we started to talk a little bit more about what I wanted and what he wanted. My property manager was gracious enough to help me go on a Zoom tour through the property since I didn’t have a realtor in this transaction to help. I liked what I saw, and we got down to an agreement.
House #3
There was some back-and-forth about various items that needed to be addressed and who would take care of them, but it was a pretty smooth process, all things considered. That third property is the one I just purchased, bringing me to eight units.
I hope you have enjoyed this brief overview of my real estate career until now. You might be wondering where I intend to go with this. When I started purchasing buildings, I would say that I wanted to own 20 units in 10 years. I didn’t really have a great rationale for that other than it sounded good, and I had read somewhere that you should aim for a cash flow of $100 per unit per month (as I said, I was relatively naïve and simplistic back then). I figured that would give me a cash flow of about $2000 per month, and as I paid off the properties, that would multiply and get me closer to the numbers I would need.
My original estimate got a little bit of vindication recently, though. I read The Small and Mighty Real Estate Investor by Chad Carson, and he provides a framework near the beginning of his book for reverse engineering your real estate portfolio. He encourages you to consider how many units you need to meet your financial goals. That way, you are not constantly pushing for growth if you have already gotten to where you need to be. By working through basic calculations, it looks like I will need approximately 24 units, fully paid off, to meet my income goals to combine with my day job income to have money for myself and money to pay for my future care needs. 20 was not all that far off, even though I didn’t know it at the time.
That’s just about the story. That’s where I was, where I am, where I am going, and why I am doing it. I really don’t believe that God does anything by accident. Maybe I am imposing what I want onto God’s will, but I pray I am not. I’m just trying to do my best with what I have been given. I am thankful and grateful for the opportunity to invest in real estate. I have a lot to learn, and I am far from an expert, but I hope that you can learn something small from my story.