I invested in real estate. Within 15 years, I was able to retire. Investing in real estate can kick start your trajectory towards financial freedom. Start investing, force equity and retire early.
Real Estate #1
I bought a condo for $200,000 in year 2000. I put my whole life savings at the time for the down payment, which was $10,000. It wasn’t my first property that I purchased but it was the first that I purchased on my own. It was a great first home for several reasons. First, the mortgage was within 25% of my gross income so I wasn’t house poor. Second, the city had a great school system. And most importantly, it was in an up and coming neighborhood .
Appreciation
The condo doubled in value in just five years. You can say I got lucky. Anyone who bought real estate of any kind in Los Angeles in 2000, got lucky. Five years later, I refinanced the condo to $330,000 and took $130,000 to purchase another house. House #1 rented without any difficulty due to reasons mentioned above.
Real Estate #2
Culver City is an enclave in Los Angeles county and only a 15 minute drive from Downtown LA. Just as one can get gold fever, you can say I got the real estate fever. I purchased house #2 for $780,000.
Force Equity
There are couple of ways to increase the value of the house. The first way is to buy a house in an up and coming neighborhood. Downtown Culver City had entertainment, shopping and work that attracted a lot of young families. They also had their own police department, that was notorious for keeping the neighborhood safe.
The second way to force equity is to buy the ugliest house in the nicest street. The house I purchased was built in 1953 and was outdated.
The third way, which is also my favorite way to force equity is to renovate the house. Do this when you move in or before, not when you’re ready to sell. This way, you get to live in a nice house and enjoy it. In addition, a lot of people want to fix the house themselves. The house will sell quicker without the evidence of delayed maintenance.
Have a Plan B
I bought house #2 with an intention of flipping it. The plan was to renovate it and sell it after my daughter went off to college. Renovating the house involved gutting the kitchen, all the bathrooms and updating it. Women pick the houses they want to live in and I knew what they’re looking for.
My daughter went off to college and I couldn’t sell the house for a profit for the real estate market crashed in 2008. Having a Plan B always got me out of unanticipated situations. I made a decision to stay in the house until the market picked up again.
Money was tight with a high mortgaged and tuition. The upside was learning the meaning of a side hustle.
The Big Pay Day
After 10 years, the real estate market finally recovered. I sold the house #2 with approximately $320,000 profit. When you sell a house, you end up walking away with a bigger check because you get your down payment back plus the the pay down on mortgage (equity). I held a big fat check for $520,000 for the first time in my life. The best part was that the first $250,000 was tax free.
$1,200,000 (sale price)
– $780,000 (purchase price)
– $90,000 (renovation)
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$330,000 (total profit)
Real Estate #3
With the proceeds, I bought House #3, which was my dream house in Temecula. Again, I renovated the house. This time, I had plenty cash to update the house without getting any additional loans or freaking out. Having the house as my second home for me and my family to enjoy was just awesome. I was also able to generate $20,000 per year in passive income by renting it out on Airbnb.
Real Estate #4
Since I still had money left from selling house #2, I used it for a down payment to buy house #4. This house again was in an up and coming neighborhood in a small pocket of Los Angeles County. The school system was crappy at best but I no longer had to worry about that. The trade off was having a beautiful view of Hollywood and DTLA (Downtown LA). Once you have a view, you’ll never go back. You feel like a winner on top of the world.
Forced Equity
To force equity, I used the principles that worked for me in the past. That is, purchase the ugliest house in an up and coming neighborhood and renovate it. I gutted the entire house, and renovated the kitchen, bathrooms, and bedrooms. Most importantly, converting the roof into a deck forced some serious equity.
Retirement
Although I enjoyed the second house in Temecula, it was also a lot of work. I decided to sell it after holding it for four years. The house was within two days of listing it in the middle of the Coronavirus pandemic. I’m certain the renovation expedited a quick sale. I was able to fund my retirement until I can tap into my retirement fund without paying a penalty. Trading in one house for an entire decade ahead of my full retirement age was definitely worth it.
Summary of Lessons Learned
- Start somewhere.
- Force equity by buying a house in an up and coming neighborhood and renovating it.
- Have a Plan B if you can’t sell when you planned to sell.
- Persevere; don’t give up when the game gets tough.
- Take risks. You’ll learn valuable life lessons.