Step 1 – Take action and buy your first property.
This article will review my first SFH purchase whiling serving overseas. Even though I made a ton of mistakes on this purchase, taking the first step allowed me to grow a large SFH and Multifamily portfolio. Take Massive Action!!!
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How it all Began
I joined the Foreign Service back in July 2002 which now seems like a lifetime ago. Prior to that, I severed in the USMC and never really had a lot of disposable income. In 2004, I remember while being assigned to U.S. Embassy Tel Aviv as a young single Foreign Service Officer (FSO), I mentioned to my mother that I enjoyed having so much disposable income. Wow, I thought as a FS-5, I was raking in the money.
My mom mentioned that a townhome community was being developed near where she lived and individual lots were being sold in advance of being built (my mom lives in Plano, Texas). Yes, my mother is the one who introduced me to real estate not knowing the impact that would make on my future. At the time, I seriously knew nothing about real estate, how to evaluate a deal, what cash flow is, interest rates, being a landlord, etc. I just knew I was going to buy a townhouse and call myself a real estate investor. Why not!!!
What did I actually buy?
Early 2005, I put a $10,000 deposit on a preconstruction 1850 square foot 3-bedroom 2-bathroom townhome for a purchase price of $148,914.00. (wow, where can you find that price in North Dallas, today). This was with Legacy Homes and over the next few months they sent me photos as the townhome was being built.
Closing was Nov 2005 and was through Country Wide Mortgage which used creative financing to fund my loan. Can you believe these interest rates!!! Funny story – I remember when I went to the Embassy to get my closing documents notarized, I thought that the ACS officer would explain the documents to me. She first looked at me strange for a moment before saying, “we only verify your signature and it’s your responsibility to review the documents you are signing.” Looking back, I can see how naïve I was on loan rates, terms and the closing process.
- Purchase price: $148,914
- Closing Cost: $6444
- Total Cost: $155,338
- 1st Mortgage: $119,100 6.125% at 30 years
- Subordinate loan: $22,300 8.125% at 15 years
- Cash at closing: $13,952 (minus the 10,000 escrow as deposit)
- 1st Mortgage Monthly Payments: $1126 (escrow included)
- Subordinate Payments: $214
- Total Payments: $1340
My total monthly payment was $1340. Also, at the time I wasn’t even aware of Home Owners Associations (HOA) fee, more on that later.
One thing I did right
I interviewed several property managers and asked the tough questions on how they would manage my property. After a lengthy process, I signed with Remarkable Property Manager. Looking back, I’ve worked with a ton of different property managers over the years and by far Remarkable Property Managers in Dallas are they best. To this day, they are still managing this property plus 2 others I own in the DFW Area.
Cash Flow – or actually NO Cash Flow
At the time, I thought just owning a SFH was good enough even though I was still having to pay a few hundred dollars each month to cover all expenses. This property was renting at the time for $1100.00 a month.
- Total Monthly Mortgage: $1340
- Property Manager Fee 10%: $110
- Total operating cost: $1450.00
- Monthly Rental income: $1100
- Total Cash Flow: -$350.00
Yes, you are reading that right, I had a negative cash flow on my first property. Remember my comment about HOA, previously? To make things worse, I had no idea about HOA and that there were HOA dues to be paid every quarter. About a year after purchasing this property the HOA tried to foreclose on my property since I had never made a HOA Payment. To reconcile my HOA back payments and avoid foreclosure, I had to pay $4500.00 to the HOA. So not only was I having to pay $350 a month out of pocket, I was hit with another $4500.00 a year into this deal.
I still own this property and it now makes over $350.00 in cash flow a month. I’ve also leveraged the equity several times through cash out refinancing to purchase more properties. Yes, that first deal almost ended my real estate investing career but I learned so much to be better prepared for my next investment. Even my second purchase a few years later wasn’t without mistakes but until you take the first step you will never begin your real estate investing journey.
We all say “I wish I knew then what I know now.” Well – you kind of can. Back in 2004 the online real estate community was in its infancy but now there are so many online resources and real estate communities with valuable resources. I recommend that you educate yourself and network with others in real estate to learn from their experience. I’ve found the real estate community is very helpful in providing advice and as a community wants others to succeed. If only I had that back in 2005, I wonder how different my first investment would have been.
If you have any additional questions, please email me directly at James@jcoreinvestments.com