How a bad $3ok investment lead to $750k in equity in four years.

The first step is by far the hardest. 

Like many investors, we started with a book on the basics, and went shopping.  Our first purchase provided zero financial value over the six years we owned it, but it was an invaluable teacher that guided our subsequent purchases that have doubled in market value over four years while providing us with a 10% annual return on our cash investment.

Three Simple Rules

Make a Plan.  
In the beginning, we had money and financing, but no knowledge of what exactly we were shopping for, or our strategy for the asset.  The result was an overwhelming choice of options, no way to clearly sift through them, and no financial performance thresholds, long-term plans, or an eye on market factors.  No surprise that our initial condo purchase was a poor performing asset.

With a defined plan, our strong returns were not by accident or luck; we knew what we were shopping for, and purchased and improved accordingly.

When the housing market collapsed in 2010, we were ready to buy and were armed with financial and strategic investing objectives. We purchased two single-family homes in 2012, improved them from their highly distressed state, rented them, and have enjoyed strong rental returns of 10% cash on cash return annually, and a doubling of market value in four years.

Once the housing market recovered, the opportunity for strong returns on single family homes waned, and I focused on multi-family properties.  Our last purchase was a Victorian four-plex in a great location, but in poor condition. Again, we invested a lot of time and effort into improving the property, and have enjoyed rental rates far in excess of what I had hoped for, and extraordinary neighborhood appreciation.

With a defined plan, our strong returns were not by accident or luck; we knew what we were shopping for, and purchased and improved accordingly.

Educate Yourself

I have become well acquainted with every topic the rentals have thrown at me from plumbing to paint to roofs to tenant law to permitting and fire damage.  Not to mention liability risk and taxes.

Every property has a surprise in store for you.  By educating yourself, the fear and stress of the unknown can be alleviated or eliminated.  The internet and field professionals are your greatest friends.

Every property has a surprise in store for you.  By educating yourself, the fear and stress of the unknown can be alleviated or eliminated.

Hope for the Best, but Prepare for the Worst

Before purchasing anything, I run a very conservative financial analysis based on researched data.  I don't guess on numbers or hope for the best.  For example, if the property needs a roof, I get a few estimates and use the highest one.  For rental income, I use a worst-case, must rent it today rate, not the rate I hope to get.

After the property is purchased, you have to keep the faith and know that with perseverance you can and must ride out the storm.  I have had days and weeks where I wanted to run and hide, but by keeping things in perspective, we have passed through these dark times to enjoy the rewards of our efforts.