Rather Be Sweating

How To Buy Your First Investment Property

Ok, ok, I know this post might seem like it’s coming out of right field. This is, after all, a “yoga blog,” is it not?

Well, yes. Kind of…

I’m so passionate about yoga and health and well-being, but let’s face it, we all need to earn a living to pay our bills and cover our living expenses. And to be able to buy diapers. Let’s not forget about diapers!

But I hate the idea of slaving away at a job, hunched over a desk, never seeing my family, unable to enjoy all that life has to offer.

Not fun, right?!

Growing up, I always thought that financial stability came from working 80 hour weeks and being stressed out over the weekends. Sure you’d have money that way but you’d have to work HARD for it.

Now as an adult with my own kids and our busy lives to manage, I’m finding that it’s not really about how hard you work at something, but rather about how smart you work at it.

A few years ago, Ben and I became determined to find and implement new income streams so that if one disappears, my family and I will have another one to fall back on.

Let’s say business takes a big dip at my studio. I own my own business, a yoga studio in my hometown, but we offer hot yoga so in the summertime people naturally prefer to be outside. They also leave town on summer vacation. Totally understandable, but I’m simply not bringing in as much revenue because of the seasonality of the business. I realized that if I have another income stream in place, I won’t be too negatively affected by fewer people coming in to take yoga and buy class packages.

Or what if, for example, Ben loses his job and we are down to just one income. We won’t stress if we’ve established some additional incomes.

The biggest reason though for us to want to add income streams to our lives is to give us more time. Money may be valuable, but I’d argue that time is the most valuable thing in the world. If you work yourself to the bone at a job that pays you a million dollars a year, but you don’t have the freedom to enjoy the fruits of your labor, then what good is all of that money?

Furthermore, health is really the ultimate form of wealth, so if my income streams allow me to take care of my physical and mental well-being, then I feel as though I’ve hit the jackpot. Pun intended 😉

After we identified that yes, we do want to work towards setting up multiple income streams, the next question became: what would that stream be? 

The following key components got us working down the path of real estate investing:

  1. The book Rich Dad Poor Dad by Robert Kiyosaki. The simple, easy-to-understand concepts taught in the book literally changed the way Ben and I thought about money and investing and really our lives as a whole. All of a sudden we weren’t thinking about what work we could do to make money but rather how we could get our money to work for us.
    Side note: While the book focuses on real estate investing, I strongly encourage anyone to read it who wants to broaden her financial education. It’s a fast read, and you will come away motivated and ready to take action.
  2. Real estate investing podcasts. The one that we have learned the most from is Keith Weinhold’s Get Rich Education. Start at the beginning with Episode #1, because the mindset is a huge part of this process!
    Tip: Put this on 1.5 x’s the speed! He talks pretty slowly so this will allow you to consume the information faster ☺

So let’s delve into the nitty gritty of buying your first investment property. This after all, was a huge leap for us to “get into the game” so to speak. I am going to cover basics and simple concepts of what worked for us, but I encourage you to use the resources I listed above, and then reach out if you want to brainstorm more!

Of course, these are some of the scenarios that we worked through. I am not a real estate agent, nor a tax or legal professional so definitely do your own research and consult with your professionals. Blogs though, are definitely a great place to get ideas and inspiration and to network!

At first, I had a hard time wrapping my head around how the heck we could own a property in addition to our primary residence. How would we renovate it, rent it out, manage the repairs, and deal with inevitable vacancies?

I felt like we were already stretched to the max with our responsibilities at work and in our own home.

And what about the cost? How could we ever afford it?!

What made this a simple, possible process for us was using a “Turn Key” investing company. Simply put, these companies buy distressed properties in strong rental markets, renovate them to get them rent-ready, and then sell them to investors like you and me. You can qualify for conventional loans by putting 20% down, and since they’re located in these “cash flowing” markets, the rent you receive will cover the mortgage, interest, taxes, and insurance. And then ideally, there will be money left over. That’s the cash flow.

The key though, is that these turn-key companies also have property management divisions, or they have at least partnered with property management companies. The property manager is like your Most Valuable Player. They are the boots on the ground, getting tenants into your property and taking care of the property so you don’t have to sweat over that broken toilet or leaky roof.

Now, not every real estate market in the United States will cash flow, so you might not be able to invest right in your backyard. That was another eye-opener for me. If you live on one of the coasts in a market that has appreciated dramatically (think: New York City, San Francisco, etc.), the mortgage payment alone would likely be too high to be covered by the rent.

What I learned in this whole process is that there are many, many markets in the United States that have lower priced homes than the coasts, yet they rent for an amount that cash flows. Markets like Dallas, Memphis, Birmingham, and Jacksonville. The markets are key because they indicate that businesses are moving to those cities and are hiring people. Those people will need a place to live, and they will have jobs and a paycheck to help them pay the rent.

Ok, so affording the down payment for your first investment property takes a combination of patience and creativity!

For easy math, let’s say the home you want to buy as your investment costs $100,000. If you’re able to qualify for a conventional loan, you’ll need to put down roughly $20,000, but let’s say $25,000 to include closing costs.

Without depleting your emergency fund, do you have $25,000 in savings or another account that you could use? If not, that’s ok! But here’s where the patience comes in…

You will likely have to save for it.

If you identify that you need $25,000 for the investment, you can take the next year and really focus on cutting down on expenses and increasing your income to come up with that investment. Sell any belongings that you no longer need. Shop the weekly deals at the supermarket. Be strategic with what you spend, and find ways to have fun that don’t cost much or anything. (I’m not big on deprivation, but having fun doesn’t have to be expensive either).

I don’t want to just end right here and say “that’s it” because obviously you have to go through the rigmarole of qualifying for the loan, providing the thousands of documents that the bank will need, and everything that goes along with that. But these were the key components that made me realize that getting into the real estate investing game doesn’t have to be as tricky as I originally thought.

To summarize, if you feel like you’re stretched to the max, but you want to invest in real estate focus on these things first:

For me, buying the first property was the hardest. I was scared, I didn’t understand the process, and I don’t come from a family of real estate investors.

So far though, the journey has been awesome! I am learning so much which I will share all of it here.

This post is certainly an overview, so please let me know if there are any sub-topics along these lines that you’d like me to cover in more detail.

What’s your favorite thing to invest in? Does investing seem scary and too intangible?

 

 

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