How I Purchased My First Rental Home

You may have previously read stories by other real estate investors, who recount overcoming seemingly insurmountable odds to purchase their first rental property, which quickly becomes an amazingly lucrative investment.  This is not one of those stories. 

There really is no reason why I should be a real estate investor today.  In high school, I ignored sage advice from my grandfather who repeatedly extolled the values of real estate.  An extremely successful businessman in his own right, he often told me that his biggest mistake was selling his home each time he was transferred to a new city by his employer.  I can still hear him tell me “We may have had to have tightened our belts for the short term, but over time those houses would have become constant streams of income”.   And while he encouraged me to attend college, he also suggested that a career as a realtor would allow me to earn an income while learning about real estate firsthand.  Young and ignorant, I dismissed his advice as hyperbole from an older generation.  

Throughout college, I continued to rent rooms and apartments from other people.  It never occurred to me that I was helping them to pay their mortgages, and built equity in their real estate investments for their futures.   This trend went on even after I graduated college, until an unfortunate turn of events found me living back at home with my mother and my stepfather.  

Perhaps “unfortunate” is too strong of a word.  I went from working 10 hour a day, six days a week doing manual labor in a hot factory in Orange, California to being laid off and lounging in my parents pool, overlooking a golf course in Las Vegas.  I still remember my response when my former employer called to invite me back to work:  “I’m good, thanks though!”. 

But my days of summer tans and endless trips to the minibar were short lived.  It wasn’t long before I’d overstayed my welcome … and honestly if it wasn’t for the fact that I’d overstayed my welcome, I’d probably wouldn’t be where I am today.   If memory serves me correctly, my parent’s exact quote was “It’s time for you to go buy your own house”.   Perhaps they didn’t put it so nicely. 

So that’s what I did.  I don’t think that my parents were envisioning me buying one of their homes, but that’s what happened.  I purchased a small three bed two bath home about 3 miles from their house.  I put 25% down against the sale price of $120,000, covering the remaining balance with a 30 year mortgage at 7.25%.   

As I look back, I’m not sure how I made it through the home buying process – I was completely clueless.   Even though I bought the house from family I still somehow ended up paying a premium vs. the market. But despite that, and the fact that the house needed a tremendous amount of work, everything ended up working out.  

The house had tenants-in-place, whose lease needed to end before I could move in.  While that was happening, I was able to find my first of many roommates – allowing me to house hack long before I knew what that actually was.  At long last, someone else was helping me to pay my mortgage and build equity as opposed to the other way around.  Though I probably didn’t realize that at the time – I was just happy to have the company.  

Nearly 25 years later, I still own that home, among others.  The fact that I overpaid for it by about ten thousand dollars isn’t nearly as big a deal anymore.   It’s a rounding error in the grand scheme of things.  

More important to me is the realization that while they didn’t have an immediate impact, the lessons of my grandfather did eventually sink through.   I just wish that would have happened at a time when he was still here, so that I could thank him.