Save yourself some time and trouble and let me walk you through mistakes I have made because when I started investing, I didn’t think of it as starting a business.

Granted, the break-outs of real estate buy-and-hold, real estate flipping, and real estate wholesaling (see here for definitions if you haven’t been following this blog) weren’t exactly household discussions in 1999.  So I give myself a break for the mistakes being of the “I have no idea what I’m doing and there really isn’t anyone around to tell me” variety. (All of my own investments are buy and hold.  Son flipped 4 houses in 2017).

Things are very different today.  There are shows on TV that have captured people’s imagination about real estate investing in any of it’s facets.  These shows make it look a little too easy (but if it looked too hard, or like you actually need to do research, run numbers and figure out your market, who would watch?  This is get rich quick stuff.).  Real estate investing is a journey for most of us, and that’ who I want to talk to.  Yes, there are people out there who are turning tens and maybe hundreds of deals a year, but not on their own, and not with a family in tow.

I want to talk to those of you who wonder if there is any possibility you might own anything beyond your personal residence, or even why you might want to.

You can see the beginning of my story here,

If you go there, you will also see some of my mistakes.  My biggest mistake was doing a one-at-a-time strategy with no long-term idea in place of where I was going with all of this.

My original impetus was to make sure that my two adult children had places of their own.  I still consider real estate ownership a way to keep a toe-hold in a fast disappearing middle class.

My financing came from my principle residence and a 2nd residence, the cottage menioned in the beginning of my story, that we had bought and refurbished.  Borrowing against the equity in our principle residence’s equity from about 10 years (we had refinanced once before to build onto the cottage to rent it, but only taken exactly enough to do that and no more), bought a townhouse for daughter (I wanted a single family home, she likes townhomes, so townhome it was).  It also bought a house in Florida for son (about $100K less in cost for a very nice 3/2).  Originally that was my total idea.  Accomplished.

Then it seemed unfair to not make sure son could move back here if he ever wanted to, and we found a short sale for $54,000 that didn’t need much work and we bought that.  It is a 3/2, which son has since made into a 4/2 (we lucked into the layout because this was before we knew our niche).  Both children pay a set fee over the mortgage cost to compensate us for downpayment money and monthly bookeeping.  All homes remain in our name, with the plan they will inherit at the current basis when we die, rather than what we paid as the basis.  As of yet that hasn’t changed tax wise.  (see below for a discussion of basis).

We bought the 2nd house in Florida, and the third (more on that) by refinancing the cottage we bought in 1999 and refurbished and rented.  We had only had a land mortgage because it was in such bad shape, and it was within $15,000 of being paid off.  So we borrowed about $100,000 against it (1/2 of it’s market value at the time) and bought the 2nd and 3rd Florida houses.  We were able to get a 30 year conventional loan on it because we had put money into it from equity in our principle residence.

Son manages all the houses in our niche,  sober houses in Florida.  To run this niche well you need a great manager (he is), a good common area and 4 or more bedrooms (and enough baths).  By the time we got to the third house, we knew that.  I still haven’t seen that house but son said it was perfect:  a 4/2 that could be made into a 5/2.  It also has a pool which, to me, is not a plus.  We bought that for $57,000 and put another $18,000 into it.   $6,000 was a roof we had planned to put on ourselves only to discover that in Florida you cannot do that if you are not a contractor unless you (the owner, not the son) plan to live in the house for one year.  Hello roofing contractor! and $6,000 over my budget of $12,000 (roof plus plumbing that wasn’t anticipated).

We fell into our niche.  Son, even when renting, house hacked rooms to others to help pay his rent.  When he moved into the house we bought for him, it was natural for him to rent out rooms (house-hacking:  letting others pay your mortgage).  Being in recovery himself, he draws from the community he knows and lives in.

He changed his 3/2 into a 4/2 by closing in the formal dining room area.  Lucky lay out design in that he still has a living room and family room area with an eat in kitchen.  The current plan is to add a full bathroom in the garage area and make 2 more bedrooms out of the living room, which still leaves family room, eat in kitchen and covered porch for hanging out., as well as most of the garage for storing his business tools.

Last year, there was enough equity in that first Florida house to borrow $30,000 against it (that took the mortgage and Home Equity Loan up to 80% of the value of the house), add money from his savings and buy a 4th house – his first house in his name, which he rents out to a family (not to roomies).

That brought us up to 4 houses in Florida (in the family portfolio), and 3 houses in Maryland (our cottage, which was rented out, our principle residence, and daughter’s house).  My husband and I decided to move our home closer in as his commute was at 1.5 hours and getting longer (it was about an hour when we originally bought the house).  We didn’t want to do the buy and close same date so we decided to use a 5% down conventional loan to buy our principle residence and then sell our other one.

We are still trying to sell our former principle residence – I’ve never seen a market tank so quickly in the fall since at the time of the housing bubble.  So we are currently sitting on 3 properties (the cottage is also up for sale – a sale last year fell through) and paying for all of them with no income from any of them, except that the income from the third Florida house pays for itself and for the cottage (from which we borrowed money for the purchase of house 3).  I’m not sure how we could have avoided that given the market, but you can see you should be sure to have a cushion.  And you can also see how equity starts really working for you.  We thought for a minute about son coming up here and using our old principle residence for a sober house here, but he wasn’t ready to move here.  I’m still thinking about it – whether or not I would be able to manage it well.  It is really perfect for one as a 4/3 with room to expand in an unfinished basement with a bathroom rough in, and 2 acres of secluded land still close to amenities.

I have to say that we hit the Florida market exactly right – just before it started climbing.  That was also luck.  I wouldn’t have bought there without son to manage the properties, and that he can run sober houses has made a definite difference in our return but also in the return to his community where guys now have a place to light in between recovery and standing entirely on their own.  There’s a lot of turnover and you have to be ready to handle that too.

The point of figuring your niche out beforehand (and not relying on luck which we have had plenty of) is that you will know what your market is looking for.  For instance, family home?  probably 3 bedrooms, 2 baths, yard and good school system.  Retirement?  everything on one level.  College area for students?  the same as for our sober houses:  bedrooms, baths and common area.  You will need to decide on whether you are going to manage the houses or hire property management.  If you do it yourself, be sure to have a good list of reliable contractors for plumbing, heating, air-conditioning and repairs.

Basis.  I am not a CPA but my father paid $10,000 for his house in 1950 and I inherited it and sold it for $217,000 in 1994.  Because it was an inheritance, my capital gains were based on the market value of $225,000 not $10,000.  That’s what we are trying to do for our children.

Questions and thoughts are welcome below!

Tammy Vitale is a Realtor/GRI (Graduate, Realtor Institute) working with RE/MAX One in Prince Frederick, Maryland.  She has been an investor since 1999 and a Realtor since 2015.  “If you want to upsize, downsize, or just-right-size your personal residence or real estate portfolio, you can count on me for expertise and enthusiasm at your service.”