This is Part 1 of a series discussing how we got involved in real estate and how it evolved over the years from a single rental house to our current rental portfolio and all the house flips and real estate agent commissions in between.
UPDATE: See Part 2 – How We Bought Our First Rental Property
If you had asked me a few years ago if I would own rental properties, or if I would have been through dozens of real estate transactions, I would have said you were crazy.
I did not have a big master plan to get rich in real estate, or use it to reach financial independence. I was just a guy a few years out of college, working in a cubicle and realizing I didn’t want to do that for the next 40 years.
So I spent a lot of time researching side hustles, entrepreneurship, and anything that might get me out of the rat race before age 65. Lucky for me, I stumbled on real estate, and I haven’t looked back since.
This is the story of how we got started in real estate investing. I am not a genius or a guru. I want to show that it is possible for a normal person to build wealth through real estate, even though I made plenty of mistakes along the way.
Related: How We Made $100K Last Year Through Real Estate Side Hustles
Prologue: House Hacking Before It Was Cool
Back when I was single, and before I ever caught the real estate bug, I bought a house. It was 2009, the depths of the recession, and Obama was handing out $8,000 to anyone buying their first home. So I figured I would take the free money and start building equity.
At the time, I was sharing an apartment with a roommate and my half of the rent was around $600. I figured I could find a 3 or 4 bedroom house to buy, rent out the extra rooms to my friends, and end up paying about the same amount as I was paying for rent while building equity in a home. I didn’t know it, but basically I was house hacking.
After looking for a few months, I found a nice half-duplex for $175,000. It had been remodeled, but I wanted to make a few more changes (mostly painting and removing the popcorn ceilings). I was also young and naive and didn’t realize that everything about owning a home costs more than you think.
But overall, everything went according to plan. It was a 3 bedroom, 2 bath house. I moved in to the master suite, so got a nice upgrade from apartment life, and I rented out the other 2 bedrooms to some friends. For the next 3 years or so, my share of the mortgage and utilities were around $500 per month, and my roommates were helping me pay down the principal on the loan.
My house hacking really set the stage for getting started in real estate investing because it allowed me to live cheaply and save a good chunk of my income, which eventually became the nest egg for my first official real estate investment.
Getting Married (AKA – Evicting the Roommates)
In 2012, I got married to the woman of my dreams. Before we got married, she was living in an apartment nearby, so it made sense for her to move into my house once we tied the knot. Unfortunately, as much as I extolled the virtues of house hacking and saving money, my wife was not keen on living with the roommates, so out they went into the harsh cold realities of the real world. (Just kidding, they knew what was coming. And even as a young, dumb guy I knew better than to suggest living with roommates to my future wife if I wanted the marriage to continue.)
While the wedding and married life was bliss, it was an absolute shock to be paying upwards of $1,400 a month in mortgage payments when I had never paid more than $600 before in my life. After talking it over, my wife and I decided to find a smaller place (and smaller payment). We didn’t need the space for just the two of us, and we certainly didn’t need the debt payment.
It was only about 6 months after getting married that we ended up finding a very nice condo in a great, walkable part of town for a steal. While the Dallas real estate market never really cratered like some other cities, 2012 was about the bleakest it got. We bought our condo for $110,000 and after mortgage, HOA, and utilities our payment was under $1,000 per month – arguably for an upgraded lifestyle over the previous house.
Why Oh Why Did We Sell?
It was during this time that I first started to get interested in real estate as an investment. I was consuming everything I could on Biggerpockets.com about rental properties, being a landlord, expenses, etc. We discussed keeping the half duplex and renting it out. It was in a great school district and good location for families, and it would have just barely met the one percent rule.
Ultimately, I was very new to the idea of real estate investing, and I am ultra-conservative when it comes to risk. So after running the numbers, I thought it would be better to sell the old house, move on, and start looking for our first true rental property.
Man, I was dumb. One of my biggest regrets in our real estate investing journey is not holding on to that first house. I mentioned that 2012 was about the worst year as far as housing prices in Dallas. We broke even selling the house, or maybe even lost a little bit of money. It certainly hadn’t appreciated at all in the previous 3 years.
As a rental, we probably would have about broken even or made a little bit in cash flow every month, which at the time wasn’t worth it to me. But looking back, that house is now easily worth $100k more than we paid for it, and the area has only improved as has rental demand (and therefore rental rates).
If I could go back and do it all over again, that would be a property I would have held onto for life. But to be fair, at the time nobody knew the extent to which (or even if) the real estate market would recover to pre-recession levels. With the benefit of hindsight, I wish I had bought a lot more properties during that time frame. Pretty much anything would be worth at least 30-50% more now than it was a few years ago.
Finding the First Rental Property
My interest in real estate investing coincided very closely with when my wife and I got married. Suspiciously so, if you ask my wife. It was only a few months after we got married that I wouldn’t shut up about real estate after having never really mentioned it while we were dating.
Fortunately for me, my wife is extremely supportive of all my crazy entrepreneurial ideas, and to her credit she went along for the ride. This is not a marriage advice blog, but if you would permit me a brief detour, I will say that I do not necessarily recommend our path and timeline for getting into real estate investing. It ended up working out for us, but there are a lot of things to work on in your first year of marriage – moving to a new house, selling the old one, and buying another rental property only adds to the stress. But ultimately it was a good bonding experience for us, and to this day real estate investing is a hobby that we share and enjoy doing together (she even ended up getting her real estate license a little further into the journey).
To give you an idea of the timeline, we got married in May, bought our new condo and sold the old house in November, and by January we had purchased our first rental property.
I’m sure a lot of people want to know, where did you get the money for the down payment on a rental property? Both my wife and I are pretty frugal, and we were in our late 20s when we got married, so had been working for awhile. Neither of us had any debt (other than my mortgage), and the aforementioned house hacking had allowed me to supercharge my savings rate.
While there are a lot of ways to find real estate deals, in 2012 the market was flooded with foreclosures so we decided to pursue that route and try to find something that needed some work so we could get a good deal. I’m not sure how many potential deals we looked at and ran the numbers for, but it was a lot. Eventually, we found the perfect first rental property – a bank-owned duplex that had a tenant on one side, but the other side was vacant and completely trashed.
Somehow we managed to beat out a bunch of other cash offers even though we required financing. I think the seller was only looking at the bottom line and ours was the highest offer. And I was too naive to realize that it was going to be a Herculean task to get a bank to agree to finance a duplex that needed a significant amount of work. But amazingly, after a lot of scrambling, stress, and too much excitement, we managed to close on the property.
We made a lot of mistakes with that first property (a story for another article), but the fact that we had a tenant in there that pretty much paid for the mortgage each month gave us a lot of flexibility as we worked to fix up the other side and get it rented out. Skip ahead 6 years, and it is now one of our best performing rental properties that cash flows each and every month (with a 3.75% mortgage as a bonus!) In addition, it has appreciated about $120-150k so just that one house has significantly impacted our net worth.
Lessons Learned: What I Would Do Differently If I Could Start Over Again
While we’ve had an incredible run with real estate since we began in 2013, with the benefit of hindsight, I would do thing a little differently. If you are just starting out in your real estate journey, hopefully you can learn from my mistakes and accelerate your path to financial freedom.
1. Just Get Started
While I didn’t spend years weighing the pros and cons and thinking about real estate before diving in, I did let a great opportunity pass me by. I was too scared to hold on to my original house as a rental after we moved out. Sure the numbers weren’t perfect, and I was nervous about being a landlord. But there is never a perfect property, and there is never a perfect time. You will make mistakes. As long as you have some reserves (i.e. don’t go buying a house on a credit card) real estate is remarkably forgiving over the long term. We have certainly not done everything perfectly and have still managed to build a nice portfolio and increase our net worth dramatically.
RELATED: How to Invest in Real Estate With No Money Down
2. Don’t be Afraid to Fail
Going hand in hand with #1, there will always be risk in doing something new. But if you are smart about it, with outsized risk comes outsized returns. I know of so many people that tell me that real estate is too “risky”, so they just stick with the stock market. And there’s nothing inherently wrong with that. But when those same people complain that they can’t seem to get ahead, or they’ll never achieve financial independence because of X, Y, or Z, it gets tiresome to listen to. I fully admit real estate isn’t for everyone, but I do believe there IS something out there for everyone – whether it’s a side hustle, or better job, or new degree – that will help them break out of their financial rut. But it does take work, and it does take risk.
3. Be Intentional
If I had been thinking longer term about real estate investing when I bought my very first house, I would have done things a little differently. I would have paid more attention to the numbers and how they would pencil out purely as a rental rather than an owner-occupied house hack. I didn’t get into this in this article, but when we did start acquiring more rentals they were kind of scattered all over the city anywhere we could find a good deal. We are now consolidating and selling off some houses that were good rentals, but were just too far away to effectively manage. Going into it with more specific criteria would have helped us focus our acquisitions a little better, and prevent some of the mess we created along the way.
Overall, I am proud of the beginnings of our real estate story. For someone who is eternally risk-averse, we actually did get started, and learned by doing along the way. If I could make a recommendation to anyone looking to get into real estate it would be that – gather some information (not too much), and then get started, you will learn so much more by doing than thinking.
KEEP READING: Part II of the series, where I discuss how we turned our dilapidated duplex into a vibrant rental unit (and only lost $15,000 along the way!)
Andrew Herrig is a finance expert and money nerd and the founder of Wealthy Nickel, where he writes about personal finance, side hustles, and entrepreneurship. As an avid real estate investor and owner of multiple businesses, he has a passion for helping others build wealth and shares his own family’s journey on his blog.
Andrew holds a Masters of Science in Economics from the University of Texas at Dallas and a Bachelors of Science in Electrical Engineering from Texas A&M University. He has worked as a financial analyst and accountant in many aspects of the financial world.
Andrew’s expert financial advice has been featured on CNBC, Entrepreneur, Fox News, GOBankingRates, MSN, and more.
8 thoughts on “An Accidental Empire: How We Got Started in Real Estate Investing”
It’s great to read more about your background Andrew. I’m looking forward to the other articles in the series.
I’m so glad to read this right now. I’m in a position I’ve fought for – I’m a young, single homeowner house-hacking her way to low cost housing in Los Angeles, but I’m about to move in with my partner and start saving towards our “starter home,” or diving further into real estate investing together. I’m lucky that my partner is just as passionate and interested (if not more) in real estate investments as I am, but I never imagined leaving my house just 2 years into my mortgage. My current renter is open to staying and even filling the home with her friends, but my first thought was, “oh god, should I sell the place?”
Reading your blog post makes me feel like I should run the numbers and make a more informed decision, rather than one based on gut reactions and emotions. Seeing that your regret was selling off your first investment was the hint I think I needed. Thank you!
Glad this helped in your house hacking journey!
I’ve though about doing this before. And perhaps one day my wife and I will. First, we need to get some student loans paid down and get a handle on our finances. (Not in major debt but we could do better by ourselves.)
I think it’s a great opportunity once you’re in the right place with your finances!
Hello Andrew! I live in Dallas and want to start a career in real estate. My goal is to become a successful investor/developer then teach others to do the same. In your opinion, what should my first step be?
Hi Brandon – Dallas is a great place to be in real estate! I would start out by attending investor meetups (either REIAs or less formal meetups through a place like Meetup.com or Biggerpockets). Networking with other investors has helped me learn a lot and I also met people I ended up doing deals with over the years. Good luck!