Rental Properties… What’s That Like?
My Investing Story: How one cup of coffee turned into six rental units
My life changed in a coffee shop in 2012.
I was fresh out of school and like any good millenial I was up to my eyeballs in student debt. But I had just taken a “Dave Ramsey'' finance class and for the first time I was thinking about money, work, and freedom.
I had also been on a kick of buying cups of coffee for people who were smarter than me - anyone who could teach me something. When I texted my old college buddy, Pat, to meet up, I had no idea that he was about to fundamentally alter the next decade of my life. As we sat down in our old college cafe, I started sharing about how I was slowly working through my student loans, how I was thinking about opening up a 401k at my job, and all the other standard “financial stuff” when he stopped me.
“Brett, we are in the middle of the biggest real estate clearance sale we will ever see in our life. Mutual funds are great and all, but you need to stop what you’re doing and start buying investment properties. Right now.”
Ok, Pat, I get it. Also… I think you’ve had enough coffee.
At the time I didn’t know that real estate consistently builds more wealth than any other asset class. I didn’t even know that my twenties were an excellent time to invest in real estate. All I had was my conversation with Pat echoing through my head along with an intense desire to kill my student debt so that someday I could start a family. And believe it or not, that was enough.
Six months later, with all of $12,000 to my name, I bought my first house on a 3.5%-down FHA loan. This would kick off a 4-properties-in-4-years buying binge, culminating in owning my own house along with six rental units.
So yeah. We’ve got properties. But that’s not what you’re wondering. What you’re wondering is:
Has real estate investing been worth it?
Benefits: Wealth Rocketship, Priceless Time
In my case, the benefits have been… astonishing.
Over the last nine years, the cash flow from our rental properties has been more than able to dig us out of our terrifying chasm of student debt. The appreciation on the houses rocketed our net worth higher than I ever thought possible. Due to market timing, a heaping pile of luck, and the magic of leverage, we’ve had an ROI on those down payments that would make Warren Buffett shoot Coca-cola out of his hundred-billion-dollar nose.
More important than the dollars we racked up, the modest cashflow from the rentals allowed my wife to quit her job and stay home with our kids through the first pivotal years of their lives. In between all the kid-craziness, she’s been able to nurture them through the baby and toddler years, walking with them through this brief phase that comes only once.
My story isn't an uncommon one. Now in my thirties, one thing I’ve consistently noticed is that the friends who were intentional with their finances in their twenties are seeing their life options increase as they enter their thirties- while at the same time my less intentional friends are seeing their options narrow as kids and mortgages start to cement both calendar and budget.
Now I could end my real estate story here and confirm the rosy story that the get-rich-quick gurus are so quick to tell- but that’s not the whole story.
The (Literal) Crap they Don’t Tell you About
What the books and the gurus won’t tell you is that rental properties aren’t just numbers on a page. You don’t just make a few mouse clicks and get a statement at the end of the month. The minute you buy a rental property you have become a business owner. You are solely responsible for the home of other humans. You need to find and manage tenants and contractors, you need to learn about building maintenance and business systems, taxes and insurance.
Over the years I have replaced toilets, ripped out moldy sheetrock, and installed flooring. I’ve buried dead animals and I’ve literally had to remove ankle-deep sewage from a crawlspace. I’ve met incredible people I’d trust with my life and worked with contractors who have made me question my faith in humanity.
360 days of the year, you’ll wonder why everyone doesn’t invest in real estate- the other 5 days, you’ll wonder why anyone invests in real estate.
But all that brings me to the ultimate benefit of real estate that doesn’t get enough airtime.
Real Estate’s Ultimate (Hidden) Benefit
After reading about all those literally crappy issues, you might be tempted to run back to the Vanguard account from whence you came. Before you do, though, ask yourself a question:
Who do you want to be in ten years?
Not just how much money or what stuff you want to have- what are you trying to do in life?
Are you looking for the easiest path you can find through life? Or are you looking to learn, to grow? To become a smarter, stronger version of yourself, ready to handle anything life throws your way (all while accelerating your financial returns dramatically)?
Over the years, I’ve picked up on a few common traits among the real estate investors I know. As a group, real estate investors are the people that go after the things in life that they want- they don’t just “wish”. They’re usually well-connected (real estate investing is a team sport after all). They’re opportunistic, they’re hard-working, and they’re smart across a huge range of subjects.
When I bought that 4-plex in 2012 I was a clueless 25-year-old kid- no practical skills, no financial literacy, little confidence and almost nothing by way of life experience.
In my nine years of being a landlord, I’ve learned and grown into a version of myself I couldn’t have imagined when I started. I’ve framed walls, replumbed houses, and wired basements. I’ve hired lawyers and battled with the city. I’ve learned the ins-and-outs of mortgages and the tax code. I’ve met lifelong friends and learned to work with people from all walks of life- rich and poor, contractor, tenant, zoning board member and neighbor. I’ve not only learned financial “savvy”- somewhere along the way I learned responsibility. Grit. Perseverance. Character.
Somewhere in those nine years, I became the person my friends come to for advice on everything from investing and finances to sheetrocking tips and even thorny people situations.
Conclusion
Like many others before me I got into real estate for “passive income”. I was wishing for an escape from work. But real estate tricked me. Through the ups and downs, the work, the growth- I’ve become someone who doesn’t want to spend the rest of his life sitting on the beach with a margarita. I want to learn. I want to grow. I want to provide value to my community.
Let’s shoot straight. Your question wasn’t about me, was it? It was about you. Should you invest in real estate? I say “yes”. If your time of life, your location, your personality, your finances, and your schedule allow, then this is a no-brainer.
I hope you make a ton of money. I hope you join the long line of ordinary people who utterly transformed their finances through real estate. More than that, though, I hope you grow into the most mature, confident, skilled, battle-tested version of yourself you can be.
Maybe the real question is: what would you stand to gain apart from the money if you entered this crazy rabbit hole we call investing?
Who could you become?
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