When we moved to Florida, my husband and I were drawn to the beautiful waterways and beaches. “Wouldn’t it be great to live on the water?” we said. “Just a little house with a view?” But as we started our home search, it became clear that even though Florida has some of the lowest prices for waterfront property in the nation, we still weren’t going to be able to afford what we wanted. Even though living on the water wasn’t possible right away, we turned that desire into a long-term goal. That’s how we got started in real estate investing. By actively getting involved in our local real estate market in a methodical and intentional way, we were eventually able to purchase the home of our dreams. Here’s how we did it. Okay, so we weren’t going to be able to live in our dream home immediately — but we did need to purchase a home for our family. With the help of our expert real estate agent, we focused our search on the following criteria: Our real estate agent helped us find a short sale property that fit all these points. Basically, a short sale means that the owners owed more on the property than the current market could support; the house was not worth what they still owed on their mortgage. These particular owners had abandoned the property, which meant the house was not very pretty. The finishes were outdated and broken. The air conditioner didn’t work. Mold grew in one of the bathrooms. Some of the appliances were missing. Birds had made a home in the chimney. The yard had become such a jungle, we literally could not even see through it to the back fence. Still, the bones were good, it met the investment potential criteria, and the numbers worked. The list price was around $230,000, and other homes on the street were valued in the $300,000s. We negotiated to around $215,000 — right where we wanted to be so that we could save for the next step. Though the house was in bad shape, it had a park nearby where one of us could take the kids while the other worked on renovations. So we looked past the ugliness, and we made it a home. We did run into some problems that are associated with buying a short sale, however. For example, a couple of years after we moved in, we were told that our address was on a recent foreclosure list, but we’d never missed a payment. Turns out, the paperwork hadn’t been filed correctly at the previous owners’ bank, and they were claiming foreclosure. Our title agent fought the claims on our behalf — a testament to why title insurance is so crucial! A few years later, once we felt established in our primary residence, my husband and I moved into the next phase of our real estate investing strategy: we started looking in surrounding areas for a smaller home with rental income potential. We did extensive research before beginning the process and found several important elements to consider. Again, with the help of a top real estate agent in our area, we found a cute home in a great area that only needed a little cosmetic work. We negotiated the price to around $80,000, whereas other homes in the subdivision were valued around or over $120,000. We could update it quickly and rent it for around $1,100 per month. A good investment. Because we had intentionally spent less on our primary residence than we could have, we were able to pay cash for this income property. This meant that after setting aside money each month for property taxes, homeowner’s insurance, and a maintenance fund, all the rest of the rental income could go into savings for the next phase in our real estate investing plan. However, Sheila Smith, a top-selling real estate agent with years of personal real estate investing experience in Boise City, Idaho, says that our cash strategy isn’t the only way. Plenty of people choose to get mortgage loans on their investment properties. As Smith says, “Using other people’s money to make money” could be a financially feasible way to get into real estate investing and see a great return on your investment, as well. A few years later, we had enough saved for a down payment on another fixer-upper. This one we considered a flip home, or one we intended to renovate quickly and sell for a profit. We watched the market diligently and made offers whenever we found an undervalued property with a good layout in a nice neighborhood. Before offering, we made sure to run numbers based on the following questions: Our experienced real estate agent once again helped us in our search, and she stuck with us through offers on multiple properties. Because the investment property market is competitive, losing out to other investors is common. It’s important to find a great real estate agent who will work with you through what could be a lengthy process. Smith cautions potential flippers to do their research regarding comparable listings. “Never over-remodel for your neighborhood,” she says. It’s easy to dream big regarding design, but will high-end tastes eat away at your profits or add to them? Take a look at the finishes in nearby homes, and model your choices accordingly. We ended up buying a home in a great neighborhood for around $95,000, flipping it in less than six months, selling it for more than $150,000, and making approximately 23% ROI (*This is a round numbers calculation. Technically, we used “other peoples’ money to make money” this time, so our personal ROI was even higher. But the strategy remains the same.) Time to move on to the final stage. After building equity by fixing up our primary residence (the value rose to $375,000), creating an income stream with the rental property (fair rent grew to $1,400 per month), and padding our down payment with the profits from the flip house, we found ourselves in a position to start looking for that waterfront home we’d been dreaming about. It wasn’t just a lateral move, though; we still had some aspects to consider: We took our time watching the local market, waiting for the right home to become available. Our family wanted to settle in and make some memories, after all. This home would be the culmination of our entire real estate investment plan. Finally, a move-in ready home with beautiful views popped up. It was slightly smaller than our original primary residence, which meant that some monthly utility costs would be lower, helping to offset the higher tax, insurance, and maintenance costs. With a 50% down payment (thanks to the accumulated equity and the flip home profits), our rental income would also cover the monthly mortgage payments. Perfect! We got started with real estate investing because of a simple dream — to live in a little house by the water with our family. Eight years later, that dream became a reality. Yes, eight years! For us, real estate investing was by no means a get-rich-quick scheme. It also wasn’t our full time job; instead, it was more of an on-the-side way to increase our quality of life. With careful planning, lots of research, and plenty of work, real estate investing turned out to be the best way to turn our dream into a reality. As Smith says, “Just get in the game!”The short-sale primary residence purchase
The rental income property purchase
The flip home investment purchase
The dream home purchase