My AHA moment about Real Estate
Webster defines an "AHA moment" as an instant of sudden realization, inspiration, insight, recognition or comprehension.
My "AHA moment" about the possibilities in real estate came after I had an interesting conversation with my landlord while in college. The landlord was also a college student. Although this exact conversation wasn't the real trigger point, replaying the content of this conversation in my head many years later acted like a lightbulb in my head.
When I moved to San Diego for grad school from overseas, I needed boarding and was really desperate to find something that fit an extremely modest budget around San Diego State University (Go Aztecs).
As an international student, money was very tight and every Dollar mattered. As I was screening the bulletin board on campus, one ad caught my eyes. A student was looking for roommates in his house. He only rented to grad students. The rent price was close enough to my budget, and the house was located near public transportation. So I went to visit the house and decided to sign the lease on the spot. It was a 3BR house with a garage. I would occupy one bedroom and the remaining 2 rooms were occupied by other grad students. The landlord himself had turned the garage into another bedroom. That was his bedroom. The landlord had very strict house rules and later I will realize that he was enforcing them diligently. My bedroom wasn't furnished, so I needed a mattress. Since I didn't own a car, I asked the landlord to help me pickup a mattress I found on sale. As we went pickup the item, I asked him questions about how he came about owning such a large house. Then I asked him why he slept in the garage, while his car was "rotting" outside. He gave me answers. I vaguely remembered words like: Co-signing mortgage, Cashflow, Rent Payments, Make ready costs when a tenant moves out. Honestly I was asking those questions more to make conversation. His answers were completely un-actionable things for me at the time. So, I "forgot" everything he said ...
Fast forward many years later, I came across “Rich Dad, Poor Dad” and read it. As I processed the information in the book, I started to remember the conversation with my landlord. Bizarrely, many of the answers he provided me back then were coming back to my mind and they started to make some sense. Cashflow, mortgage payment, co-signing, only rented to grad students, clear house rules, tenant turnovers, ...
Shortly thereafter, I purchased my first property. It was a residential property, 3BR and rented one room in the house.
Later I came to learn that this strategy is known to seasoned investors as "House Hacking".
Here is a quick summary of some of the key concepts I learned from my landlord.
- House Hacking: This is the process of owning a house and ...
- Co-Signers: This is the person that will sign the loan with you
- Make-Ready: When a tenant leaves a BR, the owner needs to fix things that were broken, clean up the rental and make it look nice again to attract new tenants. Tenants turnovers are some of the most costly times for a landlord. Once a tenant moves out, the landlord is not faced with an empty unit that doesn't produce any rents. In addition, the new tenant wants everything to be "perfect". Therefore one needs to clean up the carpet, paint the walls, replace a lot of things to attract new tenants. My landlord was only renting to grad students, because they "party less" I guess and therefore the turnover costs are not very expensive.
- Renting to Grad Students: When renting to students, there is always the concept that undergrad students are partiers and therefore most likely to damage properties.
- Location. Buying a property near public transportation is very advantageous. Sometimes the renters just don't have enough money to own their own transportation. Therefore proximity to bus stops and such can make the property very attractive. When I bought my first property, I made sure it was less than 5 minutes walking distance from public transportation.
If you are already investing in real estate, what is your AHA moment about Real Estate? When did you realize that this was a way to supplement your income and have control over your income. Leave a comment below and tell me how you feel about this aha moment.