© 2017 TLTsolutions 

Selling My First Investment Property: My Journey from Investing in Residential Real Estate to Acquiring Hotels

May 15, 2018

 

After nearly fifteen years, I am finally selling the first rental property I acquired. In light of the sale, I was inspired to reflect on my journey and the tremendous progress I have made with my financial portfolio. 

 

Years ago, I hesitantly put my first down payment of $13,000 on a condo that would, over time, allow me to acquire considerable passive income. Since then, I have purchased seventeen residential properties and three hotels. Today, my company TLTsolutions, has over $30 million under management and we continue to pursue hotel and other commercial real estate acquisitions.

 

When I first started investing in real estate, I had the same fears as many do --mainly fear of the unknown. Nonetheless, through extensive research, trial and error, and sound education, I was able to conquer them. If you are interested in real estate investment, I can tell you that it’s not only possible, it will also prove advantageous well into your future.

 

My interest in real estate development transpired in my early career--quite accidentally. Around the time I began planning for my retirement, I received a book from my financial advisor that, little did I know, would change my professional life. The book, Rich Dad Poor Dad by Robert Kiyosaki advocated the importance of financial education, independence, and building passive income through investing in assets such as real estate, or starting your own business. As if that wasn’t enough of a calling, my mother--who happened to be an insomniac--was up late watching television one night when a Carleton H. Sheets infomercial came on (he’s an acclaimed real estate investor.) Intrigued, she bought his course and sent it to me. It seemed that all the signs were there; I just needed to act on them.

 

At the time, I had just moved to the Washington, DC area after leaving New York City.  I was working for a reputable company in NYC; however, as many experience at some point in life, I was unhappy with my job and needed a break. I had chosen Maryland for a brief respite, but to my surprise never returned to NYC.

 

 

During that time, I had put a great deal of thought into the teachings and advice of my financial advisor and my mother, both of whom had introduced me to this new idea of real estate investing.  I began conducting thorough research and realized there is more to real estate than meets the eye. Although I had reservations, I decided to listen to my inner-voice and take the risk. By that time, I had started a new job and was constantly traveling --nearly every week, Monday through Friday. That left little time to search for rental properties.

 

Coincidentally, one of my friends who had recently married was a building a house and consequently selling her home --a quaint two-bedroom condo worth $130,000 in Prince George's County, Maryland. I put down 10 percent--$13,000 that I had earned as a bonus from work--and bought my first property. A rookie at the time, I wasn’t versed in the art of advertising and the Internet was not what it is today. Nonetheless, after posting on Penny Saver and Craigslist (to name a few), I found a renter.

The immediate cash flow was encouraging. I was making around $350/month from the property. Then, my biggest fear came true: a tenant who had difficulty paying rent on time, and then stopped paying at all. I was facing one of the greatest worries I’d had when I’d started in the real estate business: eviction, which is an unfortunate aspect of the business. Luckily though, my rental property was located in a landlord-friendly state, and in a county with an efficient process for eviction. I did the research on how to effectively handle the problem and was more prepared for other situations I would later encounter. The reality is you have to be swift and smart when it comes to collecting the rent because mitigating losses is of top priority.

 

I was also hit with the inevitable fact that in certain areas, there were high numbers of renters with poor credit scores. The location of my rental was in such area, and it helped me realize that understanding and mitigating risk is part of being an investor: you have to work with what you have. Given the strong rental community and potential, I mitigated the negative factors and used it to my advantage, ultimately owning seventeen residential cash-flowing properties over the years.  I was lucky enough to have only had to file for eviction twice in the fifteen years I owned my first rental property.

 

My cash flow on this condo had increased to an average of $550/month by 2014. That is annual income of $6,600. It is also income I spend less than five hours on average a year to obtain! I ended up renting the condo to a single woman who had mediocre credit, but above average income with a government job. To mitigate risks, I required her to put down a double security deposit which turned out to be the best decision. She also had trouble staying on top of rent and was perpetually late, but always paid before an eviction filing was executed. Eventually, I became comfortable with her late pay behavior and stopped filing for eviction as long as she communicated when her late payment would arrive. Since I had an additional security deposit in escrow, I had less risk of losing income if she would ever decide to stop paying. The best part? I earned an additional $80 per month in late fees from this tenant for a few years.

 

To my dread, she left the place in such poor condition, a hazmat situation in fact, that I had to hire an outside company to do remediation. I practically gutted the condo, disposing of all the appliances, toilets, bathroom cabinetry, and all flooring--which led to a full renovation. The good news? I had the two months of security deposit and was able to fully renovate only using a couple thousand dollars of the cash I had reserved over the years from rental income. The timing was good though, as the condo was approaching 20 years old at that time and needed modernizing.

 

 

With each set back, I became better equipped and more educated about how to handle the situation. I also generated stronger cash flow over time, despite various setbacks including the real estate bubble which was followed by a tremendous economic downturn around 2008, whereby the market value of the condo soared to over $200,000 in 2006 and dropped to as low as $89,000 in 2009.

 

Fast forward to present time and I am now selling this condo for $185,000 to my current tenant who has never paid her rent late!  In addition to the monthly cash flows I received over the 15 years, I will get another $84K in profit before taxes. This will be more than a one thousand percent return on my investment when we close at the end of the month.

 

 

Putting $13K on a condo worth $130K was a financial leap of faith. However, it was also educated faith because I researched and calculated on my part. In spite of all the seemingly threatening factors, real estate investment is one of the easiest ways to acquire passive income. Throughout my time renting this condo, I’ve made an estimated $82K in passive income--only having to work on this investment on average five hours a year with the majority of time spent choosing finishes for the renovation.

I was able to turn a cash investment of $13,000 into $166,000 over just less than fifteen years, which represents an average annual cash-on-cash return of 32% and a multiple on invested capital of nearly 14x. Not too bad for a money-making hobby!

 

Building Financial Freedom

 

Over the years, I took the cash flow that I earned from my rental properties and reinvested to buy other properties, including my first hotel. Yet this time around, my strategy was clearer: invest in cash flowing properties only--without the fix and flip. I focused on properties that could be renovated and could bring in revenue within two months. The truth is, the concept of investing in real estate is similar across all platforms. Moving from investing in residential property to buying hotels, or any other commercial real estate, can be an intimidating idea. However, I can testify to its merit. Over the years, I have been able to achieve financial freedom through investing in real estate, and eventually leveraging the passive income as well as the experience to buy a hotel. Yes, buying a hotel or other commercial property is a bit more complex and requires a larger amount of money, however the fundamentals are the same.

 

There are three components to profitability in real estate investing:

 

  1. Annual Cash Flow or Yield

  2. Equity available from paying down the Mortgage, i.e. principal reduction

  3. Equity gained from appreciation (appreciation = purchase price – sales price)

 

In general, real estate appreciates in value over time. In most cases, you can sell the property for more than you paid for it so that it ends up being a portion of the profit. At a minimum, you will have paid down principal with each mortgage payment using someone else’s money.

I love real estate as an investment vehicle for wealth building--regardless of the ups and downs in the economy. This journey is still underway and I am thoroughly enjoying the experience while strategically selling off my residential properties to acquire more hotels.

 

If you are interested in learning more about Tracy and her company, visit TLTsolutions.net or follow her on her social media handles: LinkedIn and Facebook. You can also schedule a Chat with her about the “Power of Passive Income”.

 

 

About TLTsolutions:

Providing unparalleled insight and access to alternative investments, TLTsolutions links people together to acquire residential and commercial real estate.  Our mission is to empower people to create wealth, so we educate and open the door to real estate investing for aspiring investors like you. We build a chain that lifts you up and gets stronger as more people join together to build generational wealth.

 

 

 

 

 

 

 

 

 

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