Getting Started

I want to give you some property studies as a framework for what I will show you next.

100 and 102 Center Avenue

100 and 102 Center were purchased side by side from a woman who was retiring and whose husband had Alzheimer’s. I was pretty good at saving, so I had $50,000 tucked away. I think it was an $180,000 property. I was able to put a 20% down payment out of pocket—$36,000 for both properties, and finance the remaining $144,000.

I bought these two properties back in August 1998. I still have them today and they bring in a nice monthly income for me.The real estate value is appreciating too. At first, I did most of the work and all of the management. I learned a lot by doing things that way.I don’t regret it and would even recommend it to others as a way of learning the ropes.

My first challenge was a vacant unit as soon as I closed on the property. It was probably a good thing though. The previous tenant was behind on her rent. It gave me an opportunity to renovate the place and charge highermonthly rent. I raised it from $350 to $400 per month. That was one of the only times my wife helped at an apartment. The new tenants were pretty good about paying but they were a little rough on the place. They were young party animals.

I used the rest of my life’s savings and bought another property with 20% down out of my own pocket and mortgagedthe other 80%. This was a three-unit in Etna.

You are probably wondering, “Hey Gary, all these other guys are teaching to not use your own money.” Well I know that they are there, and I get it. But I am going to tell you right now, in today’s economy, cash is king. As a matter of fact, cash is always king; and the man with the cash gets the best deals. I understand if you have to finance when you are first starting off though, just like I did.

I still have these properties, they cash flow like crazy and the area is awesome. I basically did it by just using good old fashioned common sense. When you use other techniques like no-money-down or owner financing, you do not really have rights of ownership. You put yourself at risk. When you are growing your portfolio it might feel okay. But you are overleveraged.

What nobody teaches you is what happens when life happens.

What happens to your highly leveraged portfolio when the economy tanks, people lose their jobs, or people get divorced? You know it happens. When you own a lot of properties, you are going to deal with these human nature phenomena. People get married, people die, kids are born, people get jobs, they transfer, they lose jobs, they get married, and they get divorced. All those things happen and they affect you because you are providing housing.

My question to you is, do you want to be highly leveraged when bad times come—because they will come—or do you want to have a safe, sound, solid portfolio based on solid principles, solid common sense, where you can weather the storm, maintain your properties, and come out on the other side shining like gold? That is what I advocate.

49 Grant Avenue

49 Grant Avenue ended up being a real winner. It was kind of a, almost scary looking property, but it was a three-unit, and made a lot money.

It was September 1998. The lady I bought the building from was a former real estate agent who did a lot a business in Etna. I gathered later that she was a real shyster. We had to delay the closing because she hadn’t collected all her rent. I balked because I believed she should have done that already. We delayed but still she didn’t collect all her rent. We closed anyway at 5:30 PM.

There were water bills to be paid on the property that she convinced the closing agent she had paid. She lied. The closing agent should have held funds in escrow to cover the bills but didn’t. I had to fight with the closing company’s attorney for six months to get these paid. It was their loss.

The next thing I had to do was have the third floor tenant move because he was a crackhead. I convinced him to move without getting the authorities involved. Then I had to deal with the tenants on the first two floors. I could always collect rent from them but it was like pulling teeth. I eventually evicted them all and replaced them with great tenants.

Business started getting better—and I was getting better at the business of real estate investing at this point.

206 and 208 Clay Street

I bought these properties from a church who had received it as a donation from an estate. It was a two-unit side by side—one brick and one vinyl. Old and small, each unit had two bedrooms and it cost only $35,000.

When the settlement company received the no-lien letter from the borough it stated the water meter may need to be replaced. Nobody thought anything of it. The settlement company didn’t see that as a requirement for closing.

Shortly after closing the borough called to say that we definitely needed to replace the water meter. I met the technician at the property and discovered that the meter was fine. We did however discover that the electronic reading device had been disconnected. The technician reconnected it and synchronized it with the water meter. I was told that it was a catch-up reading and since the settlement agency had been instructed to replace the meter (which would have resulted in an accurate reading for closing), I received a water bill for over $500.

Of courseI fought this. I agreed with the settlement company that no definitive mandatehad been given to replace the meter.The lien letter had stated that the meter “may” need to be replaced, not “must” be replaced. The settlement company wouldn’t back me up with a title claim because the word “may” is ambiguous.They were right. I eventually won my argument.

Lessons learned: First, even professionals make mistakes, and second, always be persistent—especially if you know you’re right.

I purchased the property for $35,000, enjoyed a nice cash flow from the rentals, and sold it just a few years later for $50,000.

48 Cherry Street

I bought 48 Cherry Street, a three-unit in Etna, for $50,000 from a young couple who had intentions of living in one unit while upgrading it, and then doing the same thing with the other two units. When they listed the property, they were still in unit #1. The reality of being a landlord had kicked in and they didn’t like it. They also didn’t like all the money and time it took to get things done. They had rented the third floor to the wife’s sister at a steep discount and the second floor was rented to a complete idiot at a ridiculously low rate.

So they decided to sell and I immediately saw the potential of quickly upgrading the units and charging higher rents.Plus I didn’t have to live there.

The first floor was already complete and rented to a nice little old Italian lady with dozens of kids and thousands of grandkids and great grandkids. She was one of the best tenants I ever had. I love that lady and still keep in touch with her today. While we were working on the top two floors she used to feed us—A LOT! Needless to say her unit was one of the nicest in town.

We tore out a wall in the second floor unit to open up the living room and let in more light. The rest was just basic painting and flooring. We also rented the garage in back. The old owners had been bringing in about $400 per month. When I was done renovating, the building brought in $1,250 per month. Now that’s how you make money on income property.

Lesson learned. Don’t focus on a property as it is today—use your imagination to see how it could be tomorrow!

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