Our First Real Estate Investment Deal!

Posted Leave a commentPosted in Finances, Investing, Real Estate

This blog post was also my introduction post to the Bigger Pockets forum.  I have been a part of a few different groups and have tried many different methods to generate passive income.  I have owned different websites, I have also done the drop shipping thing (with some actual success, but couldn’t keep up with it).  I was always interested in real estate (and I will probably get back into blogging once this takes off to talk about my real estate adventures).  My only other experience with renting property was when I rented my first house before I sold it in 2012.

My uncle has multiple rental properties in upstate NY and he planted the seed in my brain a long time ago.  The big sticking point was convincing my wife that this is indeed the right move to make.  Before doing that, I had to change my mentality first.  Wanting to invest in real estate is one thing, but if I am not mentally ready to commit 100%, how can I convince her?  So, we linked up with some good friends who are also stationed out here in Hawaii to talk about their portfolio.  They have been doing this the past 6 years and at the time where closing on their first commercial property.  When they showed my wife the numbers, she looked at me and I knew she was ready to do this.  As to changing my mentality, I have a list of books I need to read staring with “Rich Dad, Poor Dad” (just finished this book recently).  I plan to burn through a bunch of those books soon after I finish something else I am working on (will discuss later in this post).

I linked up with a good realtor, property manager, and general contractor back on the east coast because that is where I wanted to invest (thanks to my friend for linking me up with great contacts).  I was stationed in the Norfolk/VA Beach area for 15 years, so I am very comfortable with the area and the market.  Thanks to the Navy having the largest Naval Base there, it is an extremely good renters’ market.  Now the hunt begins…

My real estate agent set me up with an MLS list and updates it daily.  It has all the criteria I asked for and would only show me properties that met that criteria.  So now we are searching for our first deal.  So, what would happen when we find this deal?  How will we pay for it?  I talked with my friend about this because I knew we could afford it, but wasn’t smart on the requirements on buying investment properties.  We didn’t have a lot of liquid assets to use so we had to be creative.  I took out a very large personal loan and let it settle for 2 months while looking for “the deal.”  The first 3 places we were really interested in where “no go’s” for us after our contractor went and looked at them… Then BAM, we found it!  A duplex in Chesapeake, VA listed for $160,000.  It was on the market for 2 months and was getting no bites.  I was able to immediately tell from the pictures it was due to the outside of the property.  It looked a little dated and could really use a total paint job.

My contractor went and inspected the property and the current tenants where very happy and they wanted to stay.  The hot water heaters for each unit where probably on their last leg and the roof needs to be replaced soon.  Everything else looked pretty good.  So, I put in an offer.

There is some back and forth discussion and I submit the offer for $149,000 and they pay closing costs.  Deal is accepted and we start moving forward.  While all of this is going on, I link up with other real estate investors in Hawaii.  There were two different meetups that I went to and met some great people (this is also when someone showed me bigger pockets).  Can you say mind blown?  Wow, so I start listening to podcasts, reading the forums and seeing what everyone else is doing.  I am so pumped at this point.  I get my wife to start watching some of the bigger pockets YouTube videos and she is getting pumped.  She’s not quite as gung-ho as me, but I blame my military mindset for that.

Ok, the blood is flowing, I am hungry and I am wanting so much more.  I linked up with a good real estate mentor out here from one of the meetups and I am currently working on getting my real estate license (which is why I am not reading any other books until I finish this).  I am learning so much from the course I am in and I am super excited to keep pushing forward on this journey

Now, let’s move past all the fun motivating stuff and get down to the nitty gritty.  While all of this is going on and I am so excited, motivated, and hungry… I hit some major roadblocks with the property I have an offer on.  I push through many of the minor obstacles, no problem… Well, the day before I am supposed to close, my loan officer hits me up and says, hey, your loan is cleared and you are good to go… but there is a problem… Problem?  What is it?  I asked.  Well, we submitted your loan request with you putting 15% down and you were going to have a slight PMI, but we messed that up… since this is a multi-unit property, you need to put 25% down.  That’s not a problem is it?  Well, yes… yes it is… because I was already tapping myself out to get the 15%.

Now I want this to happen and I want this property… I talked with my wife and she had a minor freak out but I brought her back in and went over the numbers and how we needed to look at the bigger picture.  Not I need to come up with another $18,000.  So, I am scrambling.  I was able to take out an $11,000 loan on my Thrift Savings Plan (it’s a military 401k).  As I pay it back, the interest I pay is also going back to me, so this was not a bad route to go.  Ok, still $7,000 short, I put a $7,000 cash advance on one of my credit cards to make it happen.  While this purchase was a lengthy and somewhat painful process, it was also a great learning experience.  I know I said lengthy, but things are moving very fast since we got serious about this adventure in life.

Now here we are… We closed on the property and we are collecting rent.  We also just locked in a 2.75% interest rate interest rate reduction loan with a $10k credit from the lender on our primary house in Hawaii.  This rate reduction will save us about $330 a month on our mortgage payment.  Now we are recuperating from all of this craziness, getting our finances back in order, and getting ready to start searching for our next deal.

Mike Cavaggioni
Mike Cavaggioni

Mike Cavaggioni is an Active Duty Officer in the U.S. Navy, REALTOR-ASSOCIATE®, Real Estate Investor, and Finance Coach located in Honolulu, HI. He is the founder of Average Joe Finances and host of the Average Joe Finances Podcast. Mike is building a community for people to come together to learn and build their wealth.

Real Estate Investing, Scary? Yes! Fun? Yes!

Posted Leave a commentPosted in Finances, Investing, Real Estate

So, as I mentioned in the previous post about inbound content, I want to share with you where we are at right now.  The thing I am most excited about is the Real Estate Investment company we started.  Yes, we opened an LLC named Compass REI Properties, LLC.  We bought our first rental property and it is actively making us a passive income.  My next blog post will outline the story of how we rented it.  It is also one of my introductory posts to the Bigger Pockets forums.  I am not being paid any type of commission to mention them, I am just super excited about that community and talking with like-minded individuals.

After such a big break on the blog, how the heck did we get here?  Well, let me give you some of the background and a sneak peak into the next post.  I have always wanted to invest in real estate.  At least for over 10 years.  I bought my first house when I was 21 (ok closed after my 22nd birthday) when I was a Petty Officer Second Class (E5) in the Navy.  This was in 2007.  Well what happened in 2008?  Yeah, you guessed it.  The housing bubble burst… When I transferred from my command in 2009, I was unable to sell the house.  It was on the market for 9 months before I rented it to a very close friend of mine.  I was eating a loss every month because the rent prices for the area were so low.  When my friend transferred in 2012, I was unable to keep up with everything and had to short sell the home.  It was a very tough experience.  I bought that house with a VA loan and thought I would lose my VA loan eligibility forever.

Well, luck was on my side.  The lender filed the paperwork after the cutoff date for the short sale and was unable to tough my VA guarantee.  Phew.  Well, needless to say, a short sale will TANK your credit score.  We weren’t buying a house for a while.  I rented for a few years and moved into base housing after I commissioned because the house was right by my job.

When I got orders to Hawaii, my wife and I knew we were ready to buy again.  We also knew this market was really good and if you weren’t paying full asking price plus closing, there is no way you were getting a home.  We lost the first 3 homes we tried to buy in bidding wars.  Finally, after living in Hawaii for two months, looking at about 97 homes, putting offers on 4 of them, we purchased our second home.  At the time the rate was 4.65% on an $800k home.  Yes, that mortgage payment was rough.  $4,442 a month (taxes and insurance included).  Yowza!  Thank goodness we saved a lot of money up and became debt free before moving here.  About a year later, we refinanced with an Interest Rate Reduction Loan (IRRL) and got our rate down to 3.5%.  This was significant savings.  We lowered our mortgage payment to $3,944 a month.  Rates are so low right now that we are actually doing it again (will discuss in the next post).  Remember the debt free thing I mentioned before moving to Hawaii?  Yeah, it didn’t last…

So yeah… about the debt… Shortly after purchasing our home in Hawaii, we were plagued with issues.  We wanted to do some updates to the kitchen.  It was a big job that became even bigger.  We wanted to replace the cabinets, countertops, and appliances.  We did… However, while doing the renovations and ripping out the old cabinets, countertops, and sink… we found black mold… A LOT of it!  Now we had to rip out all the drywall and treat the beams.  Not only did that happen, but the contractor that was ripping out the countertops dropped the old countertops on my tile floor and cracked in in several spots.  We couldn’t find that exact tile so we had to now replace the entire floor.  It was a fight and they wouldn’t pay for the new tile.  We did however get the company to pay for installation… Sheesh!  Then the contractors we hired to work on our downstairs bathroom started getting really slow with their work… I was paying them by the hour… They finished the bathroom and then started working the backsplash in my kitchen.  Not only was the job starting off sloppy, but with how slow he was going, he had to go.  We fired him and hired a new “tile guy.”  The new guy came in with a much cheaper rate and had to rip out what these other guys started.  He did a great job so we hired him to tile our upstairs guest bathroom.  He tiled the floor and the walls, it was awesome!  But overall, the cost was not so awesome.  We went from having $15k in the bank after we bought our house to a $25k loan and about $10k in credit card debt.

Why did I give you this wall of text about what we went through with our homes)?  To show you where some of our fear stemmed from…

Like I said earlier, I have wanted to invest in real estate for a long time… My wife was not onboard with the experience we had with our first home as well as all of the additional costs we took on with our new home… A very good friend of mine saw what I was doing with the 3 different websites I built and products I was selling.  He said he saw how much of an entrepreneur I was and suggested I look into real estate investing.  I told him that he is speaking my language, but I am not the one to convince, I need my other half onboard.  So, my friend invited us over for lunch to show us their real estate portfolio and how they were doing it.  Of course, pregaming this, I was already trying to get my wife onboard.  She was actually really excited and started searching for properties herself.  She found two awesome deals and we brought those with us to ask my friends opinion.  When she saw what they were doing as well as the encouragement we received from the deals we found, our wavelengths synced up.  This was the beginning of something new and exciting for us.  Something we would do together and something that will create a passive income.

My next blog post will go into the details of our first deal.

Mike Cavaggioni
Mike Cavaggioni

Mike Cavaggioni is an Active Duty Officer in the U.S. Navy, REALTOR-ASSOCIATE®, Real Estate Investor, and Finance Coach located in Honolulu, HI. He is the founder of Average Joe Finances and host of the Average Joe Finances Podcast. Mike is building a community for people to come together to learn and build their wealth.