My First Real Estate Investment – A Personal Real Estate Journey
I started thinking about my first real estate investment property in the mid 80s. I was anxious to work toward getting my first investment house. I didn’t have much money, but as usual that didn’t stop me. There was a big real estate seminar I wanted to go to, but money was the problem. Against my wife’s wishes, I borrowed about $600 from my credit card, which was the cost of the seminar. I was ready to buy an investment house and hoped the seminar would jump start that process.
Borrowing money from my credit card was probably a first for me because I didn’t use credit cards although I had more than a handful of them. I went to that seminar, which I believe was in Los Angeles, some 30 miles or so from my house which was in Los Angeles County in Southern California. I absorbed all I could from the seminar, which in my case, was not too much that was new to me. But my goal for the seminar was to take away one solid idea, which I did.
Some 20 years before I had taken a few real estate investing classes in college. After those classes there was a falling out in the real estate market so I never did anything in real estate except buy my house (a VA “no money down” deal) where I was living. I didn’t consider it an investment. although in later years it did turn out that way.
Another Real Estate Seminar
About a couple of months after I had attended that real estate seminar I attended another one where there were several different topics on real estate. Those seminars were free ones and I felt they had some solid information in them. I ended up buying a course in investing in mortgages. That topic fascinated me the most. I got the idea that if you did it right that creating a mortgage was almost like printing money.
It just so happened that around that time my boss at Lockheed where I was working, was a real estate mortgage investor. When talking with him about real estate I found out he had many dozens of mortgages. They provided a very large income for him. Almost certainly, way more than his salary. I asked him why he was working if he had so many mortgages. His answer was mainly to get the health insurance the company offered.
My first Real Estate Investment
I was a budding real estate investor back then and had read a lot of books on investing in real estate. One day a relative of mine approached me and asked if I would be interested in buying her house. I still didn’t have any investing money but even before thinking how I could do it I said “Yes.”
I put on my thinking cap and spent some time thinking about how I could swing the deal. After all, I didn’t have any money. But a big thing in my favor was they only wanted to get rid of the house due to marital problems. The home was only about a year old and luckily it had an FHA loan it.
Here’s what I did to get that house, my first investment house. I made a deal with the husband to let him stay in the house for two months rent free. The wife moved out. I would cover the house payments myself those two months. I don’t remember the amount of the payments, but it wasn’t a lot. The house was in Ontario California and prices of homes had not skyrocketed yet to astronomical heights.
I found a buyer for the House
During the following two months I asked friends if they knew anyone who would like to buy a house on a lease option plan. I would give them some credit every month toward the down payment and after 1 year they could buy the house – if they wanted it. I ended up finding a nice couple with a child to lease the house. I used their deposit and first month’s rent to cover the two previous house payments I had to make.
I was lucky on that first deal because the renter had a very good job at one of the biggest car dealers in Southern California. That year went by quickly for that house and one year later I sold the house to them.
Since the house already had an assumable FHA loan on it, I would be able to create a wrap-around mortgage. These are better known as an AITD in states with trust deeds, like California. Most residential properties do not use AITDs, but it was perfect for my needs. I saw a sample of one and copied the terms of it, with my slight changes, and had a perfectly usable note to go along with the trust deed. Although I only made a couple of hundred dollars a month on that deal it gave me confidence in knowing how to pull off buying a house with little money.
Small Profit but little work
What I had done to facilitate that was to create a wrap-around trust deed that covered the house payment plus a little extra. There wasn’t much I could do to make a profit on the sale since the house hadn’t appreciated much during the year and I had sold it to them for just a tad over what the original buyers had paid.
To assure a small profit on this my first real estate investment, I increased the interest rate slightly on the Trust Deed. Three years later they refinanced the home and I got a check for slightly over $19,000. Although it was only a small profit it gave me confidence. In addition to that lump sum, I did make about $2400 a year off the difference between the house payment and what I received from the buyers each month. Small profit or not, that was good pay for probably only a couple of weeks work.
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