Moving sucks—How to move from Nomad to traditional investor
We've talked a lot recently about this Nomad real estate investing idea. But let's be honest, moving sucks. Especially as your family grows. Today, I'll walk you through our journey. And, show you with real numbers, where we started and how we began using our equity to propel us to the next level as investors. Fair warning, this will be a bit of a longer post, but the journey (and the people on that journey with us) is the best part of the story.
When Dee and I married in May of 2008, all of our possessions fit into her Honda Civic and my Ford Ranger. The first time we moved, we spent about 1 hour packing things into boxes and another hour getting things loaded. Fast forward 9 years. We just finished building a new home (phase 1 of a 2-phase infill project). This time, our move took two full moving trucks (gross, I know). Perhaps one day, I'll be a minimalist...but not today. At some point, the Nomad strategy just isn't appealing any longer. For most, however, it's a necessary place to start. And, it's where most investors will find the easiest and cheapest access to the capital needed to move into additional investment properties.
For us, this "access to capital" came through our second property. We'll dig into the second property in a few minutes, but I think it's important to look at the details of where we got started. I hope it's encouraging to anyone who feels you don't have the skills to be a landlord, contractor, or investor. We crawled first, with very little capital. That said, here is our journey and the numbers on our first two properties.
We purchased our first property in September of 2009 for $191,500. We made this purchase with an FHA owner occupied loan and put 3.5% down ($6,702.50). We then received the first time home buyer tax credit of $8,000. Over the 3 years we lived in this property, we renovated one room at a time and put about $10,000 into the house. Once we moved out, we refinanced and pulled some capital out of the property. Our new mortgage of $225,000 took our mortgage payment (PITI) to about $1,400. We currently rent this property for $1,750, leaving us with $350/month in cashflow.
This is the above mentioned property. We purchased said property in an up-and-coming neighborhood for $200,000. It was owned by a hoarder of things and animals, so you can imagine the state of the house. Because of its condition, we couldn't obtain conventional financing, so we went with "private money." Private money is a loose term in the real estate world. In this scenario, it's just a fancy term for "a close friend and mentor who wanted to see us succeed." He loaned us 100% of the purchase price at 5% interest. I spent about $70,000 of our own money fixing the home up. Once completed, the house appraised for $335,000. We kept our loan amount low on this house and refinanced into a conventional loan of $185,000, then took out a Home Equity Line of Credit (HELOC) for $117,000. A HELOC is simply a line of credit that you can access and make interest-only payments on the balance owed. Think of it like a credit card, just with really good terms. When we closed on our refinance, our private lender was paid off $185,000 and we paid the remaining balance with our HELOC funds. This HELOC of just over $117,000 is what has given us the ability to purchase the remainder of our properties. The more times we can use this money in a year, the greater the return we will receive. Therefore, my goal is to use the money over and over again, and not necessarily use it to purchase a property and leave it sitting there.
This property has been the key to our real estate investing success. This is the property that has given us access to capital, a HELOC/revolving line of credit. We've used this revolving line of credit to complete a fix-n-flip and a number of other BRRRR properties. In fact, we've added 9 rental units and one piece of land and our current primary residence using this same $117,000. We've since moved out of this property and rent it for $3,050/month.
So, how do you move from being a Nomad real estate investor to never having to move again? There are many different ways, but for us, we started slow. We were Nomad real estate investors for a number of years. In fact, we have one more move planned. The key for us was finding a property that allowed us to create a large amount of equity. Then, we used that capital to invest in properties that had value add opportunities. This gave us, in the end, the ability to pull our capital back out of the properties and go use it again.
Call to Action
Here's the beautiful thing about real estate investing. You don't have to be skilled to do it well. I'm a great example of this. I had barely swung a hammer when I bought my first house. In fact, I remember my mind exploding when I started remodeling our first home and found out that a 2x4 piece of lumber is not actually 2 inches by 4 inches.
I jumped in and grabbed people around me that knew more than I did. I asked lots of questions, hired professional when it was needed, and latched onto a few mentors who are smarter than me. I partnered with people better than me. I hired people who could do the work more efficiently than me. And, I did everything I could to learn from them.
You don't have to be a financial wizard to get started in real estate. You don't have to have a huge chunk of money to get started in real estate. You don't have to be a contractor or know how the remodel process works. You just have to be willing to take the risk and learn the process, and jump in.