This is mainly a personal diary on our journey into the wild world of Real Estate investing for passive income. I also hope my words might be helpful to other new investors.
October 2019. My wife turned 49 in Feb and I was about to turn 49 later in the month. We were about to inherit some money from my mother-in-law. We had never really planned for the future. Something about the passing away of my wife’s mom, the realization that we wanted to not be stuck in our daily grind and dreams of travel and moving back to Hawaii got us thinking.
Financial Independence. We had never really used those words in our conversations about the future. We both enjoy working and keeping busy. Financial independence just means we don’t have to work for money, but rather work on things that have a meaningful impact on our lives and the lives of others.
Ok.. so our BHAG (Big Hairy Audacious Goal) was set. How do we define financial independence? We want to be generating $25K per month in passive income. So how to get to that goal?
Our “wealth” sits in two major buckets today. Both of which we have not managed with much intent. Most of our assets have been in the stock market and in the past 10 years has been growing at about 6%.
Our second bucket is real estate. So do we have a story to tell you! We bought our first home in 1999 in Eugene Oregon after grad school. We purchased the $90K home using $10K my mom gave us for graduation as down payment on a FHA loan. We lived in the house for three years before moving to San Francisco and renting it out. Many years later we moved to Oahu, Hawaii and bought a townhouse in 2006 which was a stretch for us at the time. A couple years later we got enthralled with getting a condo on the Northshore of Oahu and bought a 2 bedroom place for in 2009. We sold our Eugene home for and did a 1031 exchange. So essentially we took our profits (after closing costs of Eugene) and put that down on the Northshore condo to rent out (this was before AirBnb) in 2005.
Sound like a real estate fairy tale? Yeh, if things had turned out differently I may not be writing this blog and we would have been living the high life buying rental properties along our life’s path. We didn’t know what we were doing and bought based on wants and emotions. As I said earlier we were rolling through life without any financial intentions. The Northshore condo tanked due to poor diligence by us. The 9 unit HOA was dominated by not so honest owners, our rental become overrun by drug users/makers and the area did not gentrify as we had hoped. So in Jan 2015 we ejected the property selling it. The most painful part was writing a $8K check at closing to pay off our mortgage. So in summary we lost all our profits from the Eugene home on that deal. And that was the end of our real estate investment. We were burned.
We left Oahu in 2014 and rented out our townhouse without considering that we had three years to sell it and benefit from the tax exemption of selling a primary residence (we lived in it 2 consecutive years out of 5). Did I mentioned we really didn’t think about what we were doing.
Fast forward to 2017 after renting for three years we decided to look for a house in the Bay Area. It was a crazy idea but we really wanted to have a place to call home. After a year of looking we finally found the perfect home. The problem? It was about 35% more than what we had budgeted. It was an off market home and we had 24 hours to decide. We got the crazy notion that we could build out an in-law studio. The house is way beyond what we could afford, but the in-law unit helped make it happen. I would soon learn this is a form of house hacking.
We had some issues with our rental townhouse in Honolulu, mainly our property managers were terrible. Both companies we tried. After our last renters moved out having trashed the place, we decided to sell and promptly 1031 it into a rental near our house. Another mistake? yes. We had to make the decision so quickly that we ended up buying the first townhouse we could find and it is barely cash flow positive each month
So here we are. Homeowners, a dud of a rental unit. How are we going to become financially independent? I have started and run several businesses and my wife is a lawyer. We must be able to figure this out. Approach it like starting a new business. Dive in, learn, network, and go for it.
Biggerpockets.com, books, phone calls and diving in. This is how the journey is getting started. This blog is my diary of learning the art and science of REI (Real Estate Investing). Come join me and I hope the information I share is useful to your own journey.
Single Fin Properties 