I bought my first house in 2003 when I was 23 years old. I was not very smart about buying the house, and I bought it during the peak of the market before the housing crash. I did not make much money on that house (I actually lost money), but I have done very well on the houses I have bought since then. I have flipped over 150 houses in my career and bought 20 rentals. Part of the reason I have done so well on my real estate investments is because of my personal residences. There is a lot of talk lately about renting being better than buying, but I am a firm believer that buying houses is better than renting them. In this article, I discuss how my personal houses have performed.
What was the first house that I bought?
After I graduated college, I moved back home to work part-time for my father, who was in the real estate business. I became the onsite manager at a large apartment building to save on rent. I lived there for almost two years before I bought my first house.
I wanted to get a good deal on my first house, but I was young and impatient. The real estate market was extremely hot in Colorado at the time, and it was tough to find good deals. I also did not know what I know now about how to get a great deal. I was looking for a ranch-style house, but I could not find any decent houses for less than $200,000. I happened to look at a four-level because it had a great price per square foot. It turns out the square footage was listed incorrectly by the listing agent, but I fell in love with the house. It was listed for $187,000, and I offered $190,000, with the seller paying $3,000 of my closing costs. They accepted my offer, and I used a conventional loan to buy the house (it was easy to get a loan back then) with five percent down.
How much money did I make or lose on my first house?
I lived in the house for 6 years until I got married and we found a different house to buy. I sold the house for $180,000 after spending at least $15,000 fixing up the house while I lived there. It was not an amazing investment, but I also sold it during the middle of a housing crisis. I may have lost money on my first house, but I am still glad I bought it. I loved the house; I had fun fixing it up; and it was a good experience. I wish I would have done things differently now to take advantage of my youth and owner-occupancy status.
How would I do things differently when buying my first house?
I made a few mistakes buying my first house.
1. I was not patient enough to get a good deal. I bought the first house that I loved and that was a decent price. I could have bought a house much cheaper.
2. I was too worried about buying a house that felt right. I should have been looking at the numbers more than I did. I could have bought a cheaper house that I was not in love with and been much better off financially.
3. I did not try to negotiate with the sellers. I paid full price right off the bat. I am fine paying full price for awesome deals, but this was not an awesome deal.
4. I should have been thinking about rentals or doing an owner-occupied flip. I could have bought a cheaper house, fixed it up, and sold it in two years without paying any taxes on the profit. Or I could have bought a house to rent after living in it for one year.
How did I do buying my next personal house?
I was smarter the second time I bought a house. This time, I was looking for an awesome deal that was also a cool house. My wife and I looked at a few houses, but we were patiently waiting for the right one. I ended up finding a vacant house while I was looking at another foreclosure. I looked up the information on the house and saw it was also in foreclosure and going to the foreclosure sale soon.
I did some research on the house, saw what was owed against it, and thought there was an opportunity to get a great deal. The problem with buying houses at the foreclosure sale is that you need cash. I did not have $200,000 in cash, so I started asking around. My sister and father in law agreed to lend me the money I needed for a few months. The house ended up going to the foreclosure sale, and I was the high bidder on it for $210,000, but the house was not mine yet.
When you buy at the foreclosure sale in Colorado, lien holders get a chance to pay off the winning bidder. Investors sometimes buy liens that are against the houses so they can redeem the property. Someone bought a judgment on this house and filed an intent to redeem. My wife and I were devastated; however, the buying process was not over. I offered the investor $5,000 not to redeem the house. They would make a few thousand without doing any work on the house. Eventually, they agreed, and we got the house! I was able to wait a few months and refinance the house for $230,000, which allowed me to pay everyone back and have a little left over.
We ended up living in this house for 4 years. I sold the house to my team manager and friend Justin for $343,000 in 2013. We had no real estate commissions, and I spent less than $10,000 making repairs on that house. At $343,000, it was still a good deal for Justin. I made well over $100,000 on that house tax-free.
How did getting a good deal on a personal residence allow me to buy my first rental?
I did not buy my first rental property until 2010. Part of the reason it took me so long was saving up the money for the down payment. Since I got a great deal on my second personal residence, it was easy to refinance. I refinanced it once right after I bought the house and again one year later. I was able to pull out $50,000 the second time I refinanced it.
You can watch me talk about how I bought my first rental and how it has done below.
How has my third personal residence worked out?
I was not seriously looking for a house when we bought the house we live in now. I was trying really hard to put a loft in our house at the time. It was a ranch, and I always wanted a loft that overlooked the main level. I had brought engineers in, tried to find the original blueprints, and done a lot of work to see if it was possible. A few people told me it was not worth the trouble, but I would not give up. I was still trying to figure out how to put a loft in my house when my wife texted me that she found the perfect house. I was at an REO conference, and I didn’t pay a whole lot of attention to the text until she said it had a five-car garage.
I looked up the house, and it was over 6,000 square feet on half an acre with a five-car garage for $560,000. My wife had made a wrong turn and accidentally found the listing. I was not looking for houses in that price range, so I never saw it come up for sale. We decided to look at the house when I got back from my conference.
I had not even thought about buying a house that was that expensive, but I was making good money as an REO agent and flipping houses. I also had bought 8 rentals at that point. We looked at the house, and my wife loved it. I liked it, but was still trying to get over spending $500k on a house. The more I thought about it, the more I liked it. I talked to my bank, and they said I could buy the house without selling my current one. We decided to make an offer of $530,000. When we made our offer, we were informed there were three other offers! I thought it was a good deal, but the market was still soft in the higher price ranges. We upped our offer to $560,000, I agreed to waive my commissions, but we asked for some of the furniture in the house. The sellers accepted our offer!
I bought the house we live in now for $560,000, and I estimate it is worth $850,000 five years later. It has been a very good investment and an awesome house. I was able to use the money I made from my second house as the down payment for the current house we live in. I obtained a line of credit a year or so later and was able to pull all of that money out and then some. That line of credit has helped me to buy more flips and rentals as well. Buying personal houses has been an awesome investment for me. I have made sure I bought my last two properties below market value, and I wish I would have done the same with my first property. I bought my first property right before a huge crash and still did okay with it. If I would have held on to that property, it would be worth over $300,000 now. The video below goes over more information on buying versus renting.