I’m not exactly sure when my real estate journey began but I knew for a long time that owning a home would be the natural next step on my path towards early retirement and financial independence. When I was living in Chicago, I was on Zillow almost daily looking at what was on the market. When I decided to move from Chicago to Milwaukee, my Zillow searches switched over to a new state.
My Milwaukee Condo
People thought I was crazy for buying a condo in a new city when I didn’t even know if I would like living there. I am a little crazy but I knew my renting days were over. I had the money and real estate is much more affordable in Milwaukee compared to Chicago. I thought worse case scenario I would hate living in Milwaukee and I could rent out my condo and move back to Chicago. For that reason, I made sure the numbers for the condo I bought would work as a rental. I wasn’t just buying a condo to have a nice place to live. I was first and foremost buying it as an investment. I most likely (hopefully) won’t be living in a one-bedroom condo for the rest of my life. Although right now I’m living my best single cat lady life and I’m very happy.
Learning and doing math
My base of knowledge came from reading The Book on Rental Property Investing. It’s a really great starting point if you’re interested at all. Real estate investing is actually a lot of math. As I learned from this book and other sources, the most important part of real estate investing is analyzing deals a.k.a. math.
Basically, if I were to move and rent out my condo, the rent should cover all the expenses and then some. I won’t get into too many details of what all those expense are here, but if you’re interested, the book mentioned above thoroughly explains them.
When you’re buying a rental property, there’s more to consider than just the mortgage. You need to have reserves each month for maintenance (pipe bursts), vacancy (tenant moves out and the house is vacant so you lose a month of rent), and more.
I use the Bigger Pockets Calculator to do the math for me. It’s a lot of numbers and this insures that I don’t make a mistake.
I got a great deal on my condo in Milwaukee. I was paying over $1,400 to rent a piece of shit studio apartment in Chicago. I lived in that Chicago apartment for 3 years which means I paid over $50,000 in total rent to my landlord. I threw away 50K!!! Never again. Now I am paying down my own mortgage and 30 years from now I will own an asset that will almost certainly appreciate in value.
The mortgage for my condo comes out to less than $500 but that’s not the only expense. There are property taxes (which are the worst thing ever by the way), the HOA fee, and homeowners insurance. All of that still comes to less than my Chicago rent and I now live in a large one-bedroom condo that I own.
Generally speaking, houses make a better investment. I considered buying a house in Milwaukee but at the end of the day I didn’t want to live in a house in a new city by myself. My condo might not be the best home run investment property but the numbers still work and the building is friendly to renters. Some buildings don’t allow renters or have strict guidelines. The HOA (home owners association) fee is also relatively low. I like living in a building with other people and a gym. Some people have questioned why I didn’t buy a run-down duplex. I could have but I wouldn’t have been happy living there at this point in my life so this was the best decision for me personally.
Buying my first rental property in Ohio
I planned on waiting a little longer before buying a second property and I actually planned on buying locally in Milwaukee. I was able to save up more money faster than I thought partially because my living expenses decreased when I moved. I wrote a whole other blog post about how I save money so I won’t include that here. But just so you know – I make a pretty average salary and I didn’t get any help for the down payments.
So let’s just say that money started burning a hole in my pocket.
I continued to read more books, listen to more podcasts, and monitor Facebook groups and forums. And once again, I can’t recommend Bigger Pockets highly enough. It’s like Facebook and LinkedIn for real estate investing. So I came across a turnkey company when I was listening to a podcast. Turnkey companies sell properties specifically to investors. The properties are usually all ready to be rented out or already have a tenant in place.
I hadn’t considered turnkey before but I went on this company’s website just for fun and was very impressed by the properties they had listed. The numbers (math I explained above) were more attractive than anything I had seen in Milwaukee. I did a lot of research on the company – I called them and asked about 20 questions. I messaged people on Bigger Pockets who had previously left them reviews. Everything seemed to check out.
Why Ohio?
I took the next step and got a house in Ohio under contract. Why Ohio? This company sells properties in a few different markets because of their attractiveness to real estate investors. Among other factors, Columbus, Ohio has very low property taxes, landlord-friendly laws, and property prices that make sense compared to the rent you can charge. There’s a reason that real estate investors flock to certain areas of the country including Columbus, Ohio or Kansas City instead of San Francisco.
The house I bought was recently renovated and had a couple of tenants already living there and paying rent. The turnkey company had already done the math and provided estimates of all the expenses and how much I would make based on the current rent minus all of those expenses. But I did my own math using more conservative estimates. Always do your own math. This blog is getting too long so I’ll provide what the actual numbers turned out to be below.
The numbers (simplified)
- I bought the house for $122,500 and put a little more than 20% down.
- The current rent is $1,000 a month. The tenant pays all utilities.
- The mortgage payment is about $490. Insurance is around another $50.
- This property has a special tax abatement meaning there are no property taxes at all for the next 15 years.
- I pay a property manager $50 a month to deal with everything and collect rent since I’m out of state.
- = The monthly cash flow (rent minus expenses) comes out to around $400 a month.
Now, that $400 a month is before anything goes wrong. Real estate has a lot of risk. For many months there might be zero issues and one month I might have a plumbing problem that costs $5,000. You never know. But I save all the cash flow and will be covered when not if something goes wrong. I have a spreadsheet that lists all the potential expenses I mentioned before.
The annual cash on cash return comes out to around 10%, meaning that I am making 10% of my initial down payment (and closing costs) back each year. That’s a pretty good return if you consider that on average the stock market returns 7% a year.
Why invest in real estate?
90% of millionaires got their wealth by investing in real estate.
The cash return isn’t all you get with real estate. My tenants are paying down my mortgage for me and then some. For example, if I put $20K in the stock market, I own $20K worth of stock. With $20K as a down payment on a house, I am leveraging an asset worth $100K and I will eventually own it outright. Plus, there are many tax benefits that come with owning real estate. If I do this over and over again, I create both short-term passive income (cash flow each month) and long-term wealth (the properties I will eventually own). Every time my tenants pay rent, I get money and I get a little bit more equity.
In conclusion…
The main message here is if I can do it, anyone can do it. Anyone can do it but not everyone will.
There are a lot of small details of the story here that I didn’t include because I don’t want to write a novel. If you have any questions at all, I’m happy to answer them if you leave a comment.
