I bought my first house on October 29, 2007.  I tentatively walked into the title company’s office to sign an enormous stack of paperwork I didn’t understand for what seemed like an hour.  When I was done, the loan officer stood up, shook my hand, and I proudly accepted the keys.  I was excited to finally move out of an apartment and into my own home.  After that brief moment of congratulations and reflection, I sat down again.  The loan officer took away the paperwork, pulled out some more, and we did it all over again.  You see, I bought two houses that day, back-to-back.  This is the story of how I purchased my first home and my first investment property on the same day.

Real Estate Novice

investment

     Buying a first home is always a special occasion.  For most people, it is the largest purchase they will ever make.  My parents only ever owned the house I grew up in, an 800 sq ft home purchased in 1969.  I think they paid $10,000 on a 30-year mortgage.  My mother sold it in 2018 for $30,000, giving her a 2.27% annualized return over 49 years.  I obviously didn’t learn real estate investing from my parents.  

    In college and medical school, I didn’t know anyone my age who owned a home, which I don’t think is unusual.  However, when I showed up for my ER residency orientation, I was the only resident in my class who had not purchased a house.  I was shocked as it had never even crossed my mind.  Even if it had, I wouldn’t have had the money for a downpayment. I rented the whole time I was in residency and even had a roommate my last year to save some money.  The early 2000s were a good time to be in real estate.  All my classmates made money when they sold their homes three years later, in 2006.  Given the great financial crisis that was to follow, I doubt the next several classes below me did as well.

Education

    I moved to Texas for my first attending job and rented a small apartment.  Home ownership was at least on my radar after residency, but I intended to move again after two years, so I wanted to avoid buying a house.  During my first year, one of my new colleagues kept talking about the power of real estate investing.  I distinctly remember him writing examples of all the ways you benefit from real estate on the back of blue prescription pads.  He discussed leverage, mortgage paydown, cash flow, tax benefits, and appreciation.   It was a surprisingly thorough, off-the-cuff education.  I was intrigued by it, so I went to the bookstore and bought a book, Building Wealth One House at a Time, by John W. Schaub.

building wealth investments

    Fortunately, the book turned out to be an excellent primer on investing in single-family homes, focusing on getting rich slowly.  Schaub recommends buying close to where you live and building up your portfolio of rental homes slowly and conservatively.  The author invested through the 70s and 80s and discusses how any interest rate under 10% is acceptable.  While that advice may have seemed outdated given the rock bottom rates we experienced from 2008 – 2021, it has come full circle given the current environment.  Regardless, the advice in this book later helped me make the leap into real estate investing.   

    After a year, I decided to stay at my job longer than initially planned.  However, I was still unsure how much more, so I decided to buy a starter home.  I figured I could always rent the house if I chose to leave or got fired.  I was pre-approved for an amount that surprised me, although it is understandable given that I was making a lot by this time and had virtually no expenses.  There was no way I would buy a house for that much money.  The book recommended buying houses at or around the median price point for the area, with 3 bedrooms and 2 bathrooms.  This size would be a perfect starter home and make an ideal rental for a family should I decide to move out.  

     The brother of a guy on my rugby team was a realtor, and he started showing me houses.  There are probably better ways to find a realtor than this one, but it worked out.  He showed me maybe 15 houses, none of which were quite right.  After another long day of looking, he finally brought me to a house I liked.  It was a nice 3-bed, 2-bath garden home that only needed mild cosmetic work for $169,000. 

I didn’t love it, but it would meet my needs, so I told the realtor I’d like to buy it.  He told me he wanted to show me the last house he thought I would like.  It was literally three blocks away, so I said yes.  We quickly drove to see another 3-bed, 2-bath, 1750 sq ft house listed for $175,000.  This one had a nice backyard, was on a quiet cul-de-sac, and had a lot more natural light.  I immediately felt that it was the house I wanted to live in.  

Taking Action

    In a spur-of-the-moment decision, I told the realtor, “Why don’t I just buy both?”  These were the two best houses I had seen, and since I had been pre-approved for enough to purchase both houses, I figured, why not?  I spoke with the mortgage broker, who told me I would qualify for two loans, so I put in offers on both houses.  I hadn’t planned on buying a rental property, but the book’s principles were fresh in my mind, and I had an opportunity right in front of me, so I took action.   Even if I had to leave the area, I figured dealing with two rental properties wouldn’t be any more complicated than one.  

     I paid $172,000 for the house I moved into, which we can call Sandhill.  Immediately I spent $30,000 to replace the floors, build a new shower in the master bathroom, and landscape the backyard.  I removed the wallpaper and painted the interior of the house myself.  I put 20% down and got a 30-year loan for the rest at 6.43%.  My combined mortgage, taxes, and insurance was $1,081.82 per month.  

      The rental house, which we can call Faulkner, was $158,000.  I put 10% down for a 30-year loan at 7.814%.  Since I didn’t make a 20% down payment, there was an additional $83 per month for primary mortgage insurance (PMI).   My combined payment is $1,436.79.  The house did not need anything but a coat of paint, which I did myself, and it was rented out within a month.  The initial rent was $1,550 a month.   

      So, this was how I became a landlord.  I managed the property myself as I only lived a few blocks from the property.  It was a reasonably new house that didn’t seem to have many problems.  I found a plumber/HVAC technician, an electrician, and a handyman to help me when needed.  I also bought a few books and learned to do a lot of simple things myself.  

Dispositions of the properties

Sandhill

     I lived in Sandhill for about 2 ½ years, then moved into another, larger house with a pool.  By then, I was a partner in a new ER group and planned to be in the area long-term.  I moved my mother from Illinois to Texas, and she lived in Sandhill until health issues forced her into a nursing home.  I sold the house in 2018, eleven years after I bought it.  The numbers for the property are below. 

Number analysis

     I do not consider Sandhill an investment property, as it served as my primary residence first and then for my mother.  I collected rent from a roommate for about a year, accounting for the discrepancy between the total investment and price paid + initial improvements.  You can see from the chart that I paid off the loan within five years.  This spreadsheet includes all transaction costs but does not include any repairs or improvements to the property.  I didn’t keep track of these expenses because I never considered this property a rental.  My annualized returns were 2.26%.  Perhaps I did learn real estate investing from my parents.  

Faulkner

      I still own and rent out Faulkner.  I paid off the mortgage within six years.  Below I have included some numbers from my records for Faulkner.

real estate breakdown

          In 2023, my family received $15,620 in ordinary income from Faulkner, taxed at my marginal tax rate.  My wife manages the property remotely.  We have always had multi-year tenants.  Rent is paid online, and if there is a problem, she sends the appropriate person to the house (plumber, electrician, handyman, etc.).  When there is a vacancy, I usually refresh the property myself, and we have a realtor who lists it and gets it rented.  His typical commission is one-half of one month’s rent.  Every few years, we must address a more serious concern (HVAC issue, carpet cleaning/replacement, etc.).

     This property’s average annual return on investment, including income, mortgage paydown, and equity, has been 11.09%.  The returns for Faulkner were negatively affected by paying off the loan early.  For a discussion of the pros and cons of paying off rental real estate early, click here.  

Conclusion 

     Neither Sandhill nor Faulkner was a “home run investment, but they did provide me with real-world experience in buying, renovating, and managing single-family homes.  I used these first two properties as a starting point for all the real estate investing I have done over the past 16 years.  Taking action was the most important part of the story.  Anyone can read a book, but putting what you learn into practice is what matters.  The odds are that your first property will not make you rich.  However, you can only own your tenth property if you buy the first one.  Like the book title, investing in real estate is a great way to build wealth one (or two) houses at a time. 

     It is important to remember that investment real estate is in the Get Wealthy stage of your financial journey, falling in Step 7 (Accumulate Assets) of the Financial Vitals Checklist.  Many real estate bloggers will encourage you to get into real estate investing before you are financially ready.  As a high-income medical professional, I encourage you to follow the checklist.  Be patient, follow the steps, and you will be accumulating assets before you know it.