Over the last few years through my experience generating many types of income streams, both active and passive, there is one simple formula that has worked every time in my business and all of its systems. It always begins with a belief followed by decisions, actions and results. By following that simple formula I have been able to evaluate each path my business has taken and will take. So, focusing on the first step of the formula, the belief, I will share my own experience that fostered my way into the real estate investment business.
Owning rental property can be a fantastic way to generate wealth but the idea of being a landlord can be daunting. Many potential investors get spooked by the horror stories and challenges of broken toilets, professional tenants and evictions. It’s true, these are facts of life for landlords so the decision to become one is not one to take lightly. Maybe you’re looking for an opportunity to build wealth or develop a supplemental income stream. Maybe you have a career and are looking for a change of pace or maybe you’re already a landlord. Whatever it was that prompted you to read this article, real estate investment is a broad enough platform for you to get involved in. Not all real estate investors are landlords but I am and I’d like to share my experience on how that happened.
For me, becoming a landlord was a particularly challenging prospect. There were many major obstacles that seemed to stand in the way of my belief that I could become a landlord. I knew other people could become landlords, I just simply wasn’t sure I could.
I am a hands on person. In order to become a real estate investor, I was going to have to participate in the investments as a landlord. Before I made the decision to go “all in” there was a long period of trepidation. Of course, I had heard all of the horror stories, but I was also enticed by the prospect of creating wealth and making money. Nevertheless, for a long time, my desires were outweighed by the fear. For me, like any other successful decision in my life, this decision had to be predicated on a belief. A belief that I could actually become a landlord and real estate investor.
For many of us, just knowing that others are already real estate investors is not enough. We need some actual experience before the reality and the belief can be real. There are a lot of ways to test the waters. Internships, mentor programs, REI groups, books, podcasts, websites, or just old fashion conversations with other people who are landlords and real estate investors, are all great ways to advance toward making a decision. For me, I asked myself, if others could do this, could I do it too? Maybe. Did I know everything that would be involved? No. How would I consider the risks v. the rewards? Not sure. Did I have what it took to be a landlord? Not sure. Could I stomach the challenges and live through the nightmares I had heard from other failed landlords? Probably not. These, and a million other (mostly fear-based) questions flooded my mind as I questioned, not whether it could be done, but whether I, Dave, could do it.
To back up a little bit, I had a basic misunderstanding of what investment was. I thought you had to be rich to be an investor. Growing up, it never occurred to me that investing was the means to creating wealth, not just what wealthy people did. My experience of living in a paycheck-to-paycheck household taught me that there were no stocks, bonds or mutual funds for us. Life consisted of getting loans, going to college, getting a good job and working for thirty years so that you could retire and begin to enjoy your life…at 65 years old. The people down the block in the ‘”rich houses” were not like us. They had great jobs or were left large inheritances. For us, there was just the monthly struggle to pay the mortgage, the credit card minimums and still managing to put food on the table. My parents worked hard – still do – but they never taught us about money. So, no, I never thought I could be an investor, and for a long time, I wasn’t. Then, I made a mistake.
In 2015, my family was going through substantial changes. It was growing, very fast. We made the decision to move out of our very small Cape Cod starter home in Broome County, NY. My wife and I found a very unique house that had been on the market for almost a year. The layout was odd but we thought we could make it work. We also thought the layout and its time on the market meant that we might be able to get a good deal. We went for it! As part of the negotiation, I removed the contingency that stated we would have to sell our existing home before we purchased the new one. We could make the financing work as long as we sold the old house in a month or two. It being June, prime home buying season, I figured it would be no problem. I was wrong. The house didn’t sell.
Six months later, we were still carrying two mortgages and paying giant bills for our new house. Both mortgages, new and old, were very large. I had refinanced the old mortgage to a fifteen year, a few years back. The new mortgage was much bigger and the taxes in the new town were triple the old place. I hated the idea of renting our first home out, but I hated that idea less than the idea of selling the house at a price I thought was below what it was worth to us. It was our first home together and we put our hearts and souls into every square inch of it. The idea of some tenant coming in and trashing it made the decision very difficult for us. Nevertheless, that December we rented it.
The rent was $1300 and that covered the mortgage and very little else. When the hot water heater went, that pretty much ate the year’s cash flow. On the up-side, each month most of the $1100 mortgage payment, about $500, was going toward principal. When I looked at it from that perspective, we were making about $700 per month on the rental. So, despite the fact that I stumbled into it, I began to realize the potential. I was becoming an investor and something started to change, though I wasn’t a believer yet. Then…I got the call on Memorial Day weekend from our tenant.
In a frantic tone, I received a call from my tenant who let me know there was sewage backing up all over the place. It was in the laundry machines, in the sinks, tubs, and lots in the basement. I pictured our lovely home, entirely covered in human waste. This was the call I had been dreading and the timing on the holiday weekend was unbelievable. I’ll spare you most the gory details, but suffice it to say, it was bad. I quickly watched a few YouTube videos, purchased or borrowed a few tools and headed over. Thanks to my grandfather and my father, I have always been pretty handy so I figured I’d give it shot, especially because of the holiday, the drain guy wanted $600 just to show up. That seemed like a rip off, so I went to work into the muck. Snaking, jabbing and fighting with the sewer clog. I couldn’t get it. I fought for what seemed like hours. It wasn’t budging. I could feel the clog but simply couldn’t push the snake past that point. I wondered – was it roots, toys, rocks? I kept at it. Nothing. I put everything down and gave up. As I began to wrap the snake back up, I felt defeated. It occurred to me that maybe one more try would do it… I went back at it. After a few more minutes, right when I was about to give up again, with the snake all the way extended, low and behold…I felt something push through! I yelled out, “I gaaahhhht it!! It was at that moment, in basement on Memorial Day with a combination of other people’s human feces and urine on my body, I was elated. I could do anything. Very shortly after that, several more amazing things happened.
I was proud of the accomplishment. My tenant, who had been watching me fight with the drain snake (very physically) for about thirty minutes, was impressed. I had kept up my end of the bargain and he knew it. I lectured him a little bit about the amount of dog hair that was everywhere, including in the laundry machine and how that had probably caused the issue. After that experience, as I drove home, it occurred to me. If I could do this, I could be a landlord. Not only did I have a breakthrough with the drain that day, I had broken through the terrible barrier of uncertainty that was between me and my real estate business. All of a sudden, I had the belief that I could actually do it.
Now, unclogging a sewer drain on Memorial Day does not make me a great landlord or real estate investor. The point is, some of us are harder cases than others. Some of us need to get down into the fear and take action in order to get back to the beginnings where our beliefs lie. To change our thinking. To combat the fear that stands in the way of greatness. Before that day, I did not see the massive opportunity that was presenting itself. Even afterward, it took countless hours of analysis, education and relationship-building before I took the next step and made the decision to proactively resolve to become a real estate investor. Yes, I decided to invest in real estate. However, I never would have been able to do it had I not started with the belief that allowed it to become the reality. Here’s the great news…anyone can have the belief. You don’t need to know how to unclog drains, evict tenants, collect rent, get loans or analyze deals. All that stuff comes later. Your real journey will always begin with what you believe to be true.