Many of you have been following my (long, horrifying, exhausting) home buying journey on this site over the last five years and we're about to come to the exciting conclusion. For those just tuning in, here is the TL:DR.
- I bought my first home at age 26 using the help of a down payment assistance program.
- I paid only $1800 at closing.
- The project was stressful and I made a lot of costly mistakes thanks to working with a super sketchy contractor.
- The home was an extreme fixer-upper and I spent ~$60,000 renovating the home in the final quarter of 2013.
- I used a 203k renovation loan to fund the renovation project, so the costs were lumped into my monthly mortgage payment.
- I rented out rooms in the house and became an accidental landlord.
Taking on such a massive project as a first-time buyer and at a young age gave me a crash course in homeownership, and so I spent the last five years writing exhaustively about buying and selling. I even wrote a book about it because I felt there were a lot of things no one told me about home buying I really felt first-timers should know about.
Now, it feels like that chapter is closed. The final bullet point on the list above is that on September 28th, 2018 I closed on the home.
And the big payoff – I walked away with close to $150,000.00 on the sale.
They said I was crazy…
There's really no nice way to put it. In 2013 I moved into a really run-down neighborhood. It'd been hit hard by foreclosure and many of the homes weren't well cared for, or boarded up and sitting vacant and abandoned. However, the neighborhood felt very”up and coming”, with a few renovated homes and an active and friendly homeowners association, so I went for it and had a (mostly) great time. At the time, almost everyone (parents and best friends) thought I was making the biggest mistake of my life.
Not to mention putting my own safety at risk.
After my then-fiance and I broke up, my parents begged my younger brother to move in with me so I wouldn't be alone there at night. He graciously agreed and I ended up dedicating my book, The Millennial Homeowner, to him.
But no matter how chaotic and stressful it got, I always knew I was doing it to have my money make money.
I always knew after five years of people making fun of me for living in that neighborhood, friends too scared to visit and leave their car outside, and people wondering if I’d actually lost my mind, that I’d be the one laughing.
I always knew that initial $1800 would grow into something much bigger.
These numbers don't include mortgage payments I made while living in the home as my primary residence.
Because the mortgage was around $100k at the time of sale, I received $147K+ and I'm really, really proud of my first home/real estate “investment.”
But the whole occasion (or lack thereof – I didn't even get to attend closing due to FinCon) got me thinking about what it takes to invest and make that kind of money with a real estate purchase, what I would've done differently, and where I'm at now.
“Good deals” are really rare
I'm putting a disclaimer here: My results are not typical and you should not expect to make that kind of money from investing or real estate investing. Housing has only gotten more expensive, particularly in urban areas and even more so in Atlanta. Maybe in a smaller town a fixer-upper can be had for under $100k, but I haven't seen prices like that in a while.
Even though studies show how millennials are economically disadvantaged because of the recession, I was able to economically benefit from the housing bust. Not only was I able to get a home at a rock-bottom price, but my interest rate for the home was a super-low 3.25%.
My fiance´ and I are under contract on a home currently and, trust me, the interest rate is not 3.25%.
Five years is a long time
Initially, when I applied for downpayment assistance and learned it would be forgiven over five years I thought, “Oh, five years isn't so long. I can do that.”
But standing at the end of it looking back, a lot has transpired and changed since 2013. Five years was much, much longer than I ever anticipated.
But it taught me an important lesson – that with any investment you have to be patient. (And anyone will tell you patience is not a virtue of mine.)
But really when it comes to earning money, nothing happens overnight. Nothing. Not a business, not an investment, not debt payoff. There is no such thing as a “get rich quick” scheme.
When it comes to wealth building, you have to redefine your definition of “quick.”
It's Important to Frame Your Thinking Around How to Make Your Money Earn Money
I'm not sure if I've ever shared why I went down this road in the first place. I think I've probably talked about it on a podcast or in an interview at some point or another, but basically when I left my full-time job in NYC they gave me the rest of my bonus as severance and for the first time in my adult life I had legit savings. After taxes it ended up being around $16k at the time.
(Also – figuring out how to live frugally to make that money stretch became the impetus for this blog, but that's another story for another day.)
After five months of unemployment and getting established in my own apartment in Atlanta, I only had about $8k left the following year and knew if I didn't put it someplace where it could make money and grow, then I'd be likely to squander it all. Because I'm a big spender and recovering shopaholic.
But mostly, I wanted the money to mean something; I'd had a hard time in New York (which I won't go into too much detail here – it's in the past) but basically I wanted something tangible and real.
Something important where I could look back and say, “I have (x) because of (y).” I felt it would help me make peace with the situation and also help provide some stability and real roots in my life during a very chaotic and confusing time in my life.
So, I decided to put the remaining money into a small, low-cost piece of real estate. It wasn't until I did more research that I found I could get the assistance if I renovated and then from there, I found a house I felt had potential and from there it's history.
It's always more work (and expense) than you'll plan for
The abbreviated version of my story above probably makes it look really easy. And many will say I got “lucky,” but there really isn’t any luck involved when you buy a home in an underdeveloped area. My choice in housing was very much intentional.
Here's all the work I did over the last five years:
- I did the homework for the purchase – the due diligence on the neighborhood, research on my down payment assistance.
- I tirelessly searched for properties near the Atlanta Beltline development project, which I knew and began to see were majorly impacting real estate values in areas where the Beltline had already gone in.
- I did the things most people wouldn't do – like and buy a home in an undesirable area. In order to generate any kind of wealth, you have to be willing to do the things most “normal” people wouldn’t do.
- For a few years until my finances recovered, I had to live on a pretty bares bones budget.
- I stayed in on Friday nights to work on the blog or do freelance writing projects to make more money.
- I was only making $40,000 at the time I bought the home, and so had to “house hack” by renting out rooms and live there at the same time. It was work to get the home ready to rent, manage personalities of different roommates (it took a few tries to find a good one), and keep the house in order.
- In terms of expenses, I didn't travel a ton (not like I do now) those first few years because most of the spare monies I had went back into repairing and maintaining the home.
When people say it was “luck” I get very irritated, because there was so much work involved.
You have to be willing to do what no one else will
I have a favorite mantra of late and it's one I repeat over and over (especially when I don't want to go to the gym.)
“To live the life you've never lived, you have to do the things you've never done.”
And this is where so many people trip up. Success isn't accidental and you have to be willing to put in the work.
And I also think success requires a certain amount of risk tolerance. At the end of the day, my “real estate investment,” was a risk. While I felt very good about the investment, there wasn't a guarantee it would work out.
I could still be “holding” the home until it appreciated enough in value to sell, or things could have changed and the neighborhood may not have appreciated in value, or at least at the rate it did.
What I’m Going to Do With The Proceeds
I announced this on the ‘gram, but Rich and I are in the process of buying our first home together. While I can’t share any details yet (we close on October 31st!) I can say that we are in a dream neighborhood, it's move-in ready, and we’re both super excited.
It makes me smile to think that five years ago I was living in one of the most downtrodden zip codes in Atlanta, and now I’ll be able to afford to live in one of the best.
So, a large chunk of the money will be for my half of the down payment. But, the rest will be split:
- Making close to $30k in retirement “catch up” contributions
- Buying a new car (when the time comes.)
- Having a nice nest egg in both my personal and business savings accounts (so I no longer have to sweat whenever I want to invest in the business or pay my taxes or when clients pay me late. )
- Starting a real f*ck off fund.
I'm also contemplating what my next investment will be. As I said above, I need to think about how I can make this money earn more for me, but TBD on what that is.
And while $150,000 isn’t enough to retire on by any stretch of the imagination, my little nest egg should keep me from having to seriously worry about money ever again, so long as I continue to earn, spend, and save wisely.