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Profiles Of Successful Young People: The Rising Real Estate Star

22 December 2010 14 Comments

A few days ago I asked readers to send in their stories of young people achieving significant success and financial gain while still young.  Here is the first in this series.  Send in your stories if you have them.

Here is Arthur’s story in a nutshell:

Career Background:

To give you context, I have been working in sales for the past 8 years.  My first two years I made $50k; then after about two years, I leveraged my experience in a small company (9 employees) to pursue a worthwhile opportunity with a fortune 500 company – Pearson Education. During my time there I’ve generated a yearly income of ~$100K annually.

When I first started in sales, I was making a base salary of roughly $50K, and I adjusted to living on that income.  I didn’t buy into liabilities like new cars or expensive TVs, nor did I get into credit card debt.  Up until 2 years ago, I sacrificed the lap of luxury in order to grow my savings account and to contribute to my 401K.

Moving my money into Real Estate

One thing I noticed is that while many of my co-workers were high-income earners, they didn’t spend their bonus money wisely.  Many of them bought new cars, expensive upgrades on their primary homes, lavish vacations, etc.   This all produced the same end result: flashy ornaments, but no true wealth.

One day (about two years ago) I had a long conversation with a buddy from college who came from a wealthy background.  We started talking about money and investments.   During this conversation, he said that I should consider buying a few rental properties.  I didn’t know ANYTHING about real estate except that most wealthy people dabbled in it.

Fast forward 3 months, I devoured every book I could get my hands on regarding the topic of real estate investing (literally 33 books).  After all the info in hand, I took a risk and bought my first property (roughly 2 years ago).

Property #1:

* Single-family home in a suburb outside of LA price $315K

* Current value – 345K ($37K in “built in” equity – I purchased below market value).

* $545 per month in cash flow.

Property #2 (6 months later):

* Single family home Price 75K (short sale)

* Current value – 120K.  ($45K built in Equity)

* $500 in cash flow, per month.

Property #3 (3 months later):

* Duplex in central California Price $110K.

* Value -150K. (40K of built in equity)

* cash flows $985 a month.

Property #4 (2 months later):

* Single family home in central CA price 70K

* Market value is roughly 90K (20K of built in equity)

* cash flows $525 per month.

Property#5 (pending):

* Single family home Central CA. Price 90K

* Market value is110K (20K built in equity)

* the cash flow is projected to come in about $500-600 a month.

Tenants & Financing:

The key to rental property is understanding how to qualify tenants.  Someone may look good on paper, but be incredibly difficult to service (constant phone calls and requests), so I usually try to find people who have decent finances and who will take care of the property (as much as a tenant is willing to anyway).  Also, since I have been extremely strategic with the locations I purchase in I usually get “b” quality tenants (I’m not a slum lord).

Things have been going quite well so far. I do have to stay in communication with the renters and occasionally I have to call a “handyman” or take care of a problem myself, but over all I enjoy the whole process.  This completely different than the stock market, but I understand what I am doing and I love having 95% control of what is going on with my investment.

Regarding financing, I think it comes down to understanding how to correctly manage risk.  Too many people see loans as a bad thing, when in fact, they are the biggest key to unlocking true wealth.  Leverage allows me to realize incredible returns that can not be matched anywhere else – 35-40% ROI.  Another thing to consider is that apart from the getting a good “deal” on the property, a locked in 5% interest rate for 30 years is unbeatable.  Plus if you think about it, the bank is the one really taking the risk, they have to put up 80% of the money. Need fast cash? Instant Payday Loans Online from MyPaydayLoanCash.com can help out within 1 hour.

The problem is that a few years ago people didn’t understand the market or how to properly analyze an investment opportunity and they lost everything.  I keep 8 months of cash reserves per property, roughly 25K, on hand at all times.  So if I have to carry the mortgage I am not up a creek.  Secondly, since I only purchase properties with healthy cash flow (most of my mortgages are around $500 a month) the excess is put in a savings account which pays for any repairs or vacancies.

Closing Thoughts:

I’ve put together a highlight real of the past 9 years, but SO much has happened to me internally.  The biggest thing I learned was to change my thinking (consumer to investor).  Your email to me was correct, one can not save their way into true wealth – taxes and inflation will win over time.  I’d be happy to talk about the set backs and the struggles (cleaning toilets, re-piping a whole house, dealing with tenants) if you’d like to talk further.

I recognize not everyone can accomplish what I have done in the same time line, however, I am not doing anything overly complicated.  This type of portfolio can easily be attained – especially between two working partners.

14 Comments »

  • andrewbpaterson said:

    What an inspirational post! I'm assuming a few of those 33 books were Kiyosaki…
    =D

    How do you analyze a property to determine if it's a worthy investment?

  • Arthur said:

    Hey Andrew! You are right I did manage to read a good amount of Kiyosaki's books (5), but there is some really great stuff out there. There is also a TON of stuff on itunes (podcast) most of which is FREE!! ____Regarding your question about analyzing property, I generally look at a few things: Cash flow, Cash on cash return and condition of the property. I don't bother looking at anything that won't give me a 25% return cash on cash. The house has to be in moderate shape (preferably built after 1978), no more than 5K in repairs. Lastly, the neighborhood has to be decent – people walking (not running away), kids playing outside (not dealing), people working on their houses (not stealing) over the weekend, to name a few. There is more to it, but these are the basic rules of thumb I use. Feel free to friend me on facebook!

  • andrewbpaterson said:

    I sure hope there are opportunities in MY area for 25% return cash on cash…that'd be sweet!
    Thanks for the reply, Arthur.

  • Arthur Garcia said:

    happy investing.

  • Arthur Garcia said:

    If you have any more questions you can email me at artieag81 (a) gmail (dot) com.

  • Reina Hosier said:

    It is interesting that 20sMoney chose this story as his first success story. Although I agree with Arthur's assessment of real estate being a path to wealth, even with the debt incurred, this seems to go against the feeling of this blog.

    It seems that debt, even mortgage debt (investment or personal), goes against the principles you've mentioned in previous posts.

    No judgment here. Just an observation.

  • 20smoney said:

    Good question. Arthur and I discussed that aspect in detail which is why he brought up the massive reserves he has for his properties ($25k per property). The goal of this post isn't to tell you to do what Arthur is doing, but to show you other people who are young who are making moves and doing well. If all I did was talk to and read about people doing the same I'm doing and with the same strategies that I have, I wouldn't learn many new things.

    I can tell you that I don't plan to implement this strategy. I think the housing market has years to decline still. When the idea of investing in real estate is absolutely ludicrous to most people, then ill consider it.

    I appreciate Arthur's story however.

  • roger said:

    25K reserves total, not per property. If you could turn $500 investment for a 100K property, then I think it's probably still a good investment. YMMV

  • Sai said:

    wow, what a great story! I'm very impressed with how much you've accomplished. My boyfriend invests in mid-size appartment buildings so I do know a litte bit about real estate. A lot of people are afraid of debt, but it is so smart to use borrowed money to generate more money. I agree with you, it all comes down to correctly manage your risk. Looks like you do a lot of homework before invest in a project, which reduces a lot of the risk. Plus, you can't make money without any risk.

  • Arthur Garcia said:

    Thanks Sai!

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  • Ron said:

    Hey,

    thank you for posting your story it’s always appreciate when we get insights. I was wondering however, how old you were when you first purchased your first real estate if you don’t mind me asking?

    Thank you in advance,

    Ron

  • Ryan said:

    Arthur, I was wondering if you could list all the books you read. I have been wanting to begin getting into real estate investing but i really dont know anyone who does it and have not found very good books. Its difficult to begin making the right decisions toward building my wealth when i dont have any sort of mentor or anyone to talk to who is successful. Did you experience the same sort of problem?

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