Rental Profits With Out Pain Part 3

by | Oct 31, 2018

39 Walnut Street

I bought 39 Walnut Street for $62,000. It was a duplex with a three-bedroom unit downstairs, a three-bedroom upstairs, and a garage. It was in a pretty good neighborhood of mixed owner-occupied and rental properties. The mayor’s daughter lived next door. It also had a nice covered front porch, nice covered rear porch and a fenced-in yard.

I spun the garage off and rented it separately. At the same time, I got permission from the borough to create a two-car parking pad in the rear of the house, still leaving plenty yard to enjoy. Initially, the rents were both well below $500 per month. Over time I increased that to $600 each. The tenants I inherited paid their own water and stayed in place for a few years, which helped a lot. I didn’t raise their rents until some improvements were made and then I didn’t raise them to market level all at once.

Lesson learned: when buying three-bedroom apartments you will almost always be catering to families. Make sure the neighborhood is suitable for families.

When I sold that property years later, I was making almost $1,400 a month.

749 Florence Avenue

This property was a fully-rented duplex, just two doors down from 741 Florence. At that point I had a pretty good share of my real estate holdings in Avalon. I liked having two properties close together and others within a few blocks.

This property was distressed, and so were its owners. They were an elderly couple, and when the husband showed up at closing he needed an oxygen tank. I think they were asking $40,000 initially. I bought it for $32,000. Once again I put 20% down and took a mortgage for the remainder. By this time any money I put down was being generated from the cash flow of my other real estate holdings, not my savings account.

The upstairs tenants are still there today. They are some of my best tenants. At that time their rent was really low—$250 per month. Understandably, they didn’t want me to raise it to the market level of $450. I met them halfway.I performed only essential upgrades and raised their rent to $350. They would live with the old carpet, etc.

The lady downstairs was a single mom of three, all living in a one-bedroom apartment. She was a pig and behind on her rent. She gave some cockamamie story about giving her rent to a man who was posing as a property manager. I can’t remember what she had been paying—or rather not paying—but after she left I turned her old apartment into a very nice unit and charged market rate of $400 per month.

I also installed two new furnaces and put on a new roof the next year. Years later I sold it for, I believe, $65,000.

Lesson learned: don’t be afraid to take on a place that may look scary if there is a lot of upside potential in multiple areas such as rent increases and increased value due to improvements.

802 and 804 Taylor Avenue

This was the last property I bought in my first year of operation and it was the crowning jewel of my Real Estate Empire. It was one big four-unit building with a pair of one-bedroom units on the first floor and a pair of two-story three-bedroom units above.

The one-bedroom units weren’t in too bad of shape and were currently rented. The three-bedroom unit on the right was vacant and needed some improvements before renting. The other three-bedroom unit was being rented as a one-bedroom unit because the second floor needed to be improved before it would be rentable. The electricity on the right needed to be separated between the two units. Finally, the gas needed to be separated between the units on both sides.

Sounds like a lot of work but I bought the place for $80,000 and the upside potential on rent and equity was tremendous. After buying nine other properties in less than a year I needed to take a different route in order to purchase this one. I took out a commercial line of credit secured by the equity in my nine other properties from a small private lender named Larry Newman whose company is called Briar Cliff Financial. I used that money as the down payment, and again got a first mortgage for the remaining 80%.

I immediately separated the gas and electric and passed the responsibilities of paying those bills into the tenants’ hands. At the same time I got the vacant three-bedroom unit ready to rent. I was having a hard time renting it when finally at the end of the summer a Section-8 tenant came along. It was my first Section-8 tenant and I was a little nervous, but also a little desperate. As it turned out they were some of my best tenants ever. The next step was to get the other three-bedroom unit ready and rented.

As it turned out, the tenants in one of the one-bedroom units wanted to move into a larger unit,while the tenant in the newly finished unit didn’t need all that space. So they swapped—lucky me! I now had a fully rented building bringing in almost $2,000 per month.

I quickly paid off the commercial line. As a matter of fact I also paid off my home equity line of credit and personal line of credit all within the next year. I sold that building a few years later for $132,000, so I made over $50,000 on the sale; cash flowed like a maniac while I owned it.

I then had ten buildings—a total of thirty units—and was clearing a net operating income of $4,500 per month. After all my 401k, and social security tax, state taxes, local taxes, federal taxes… all that crap that comes out, my net take home pay was $4,500 a month. So now my investments were meeting that income and I had choices, now I had options. Not bad for a good ol’ boy from Virginia.

So the reason this is important is that in the year 2003, I was 40 years old and I retired from the corporate world because I had that income. I was making as much from rental properties as I was with my take-home pay from my corporate 9-to-5 job and I was able to keep my head above water while juggling both responsibilities.

However, it didn’t take long for me to make a couple of realizations. First, I had a beautiful wife and two beautiful children at home and I wasn’t there as much as I wanted. Second, I couldn’t keep up this pace forever. Third, I had a taste of what possibilities lay ahead of me in real estate, including freedom.

Freedom—glorious freedom is what motivated me to get back out there and buy five more buildings with fifteen additional units. I figured that was what I would need to replace my corporate income and then some, and ultimately complete the process of buying my own freedom! And that’s exactly what I did during the next year.

I did not retire right away.Instead, I waited several months, an entire year. I paid down some of my secondary loans—paid them all off as a matter of fact—which increased my cash flow. Plus it gave me a lot more capital to go back out there and purchase four other properties to keep feeding the engine. That is exactly what I did.

How I Did 110 Transactions A Year With NO Assistants…And You Can Too…Get My Case Study Now>> https://www.myinvestmentservices.com/gift/ 

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