Our real estate journey starts during that transition period from Medical School to Residency. I was returning “home” to California and thought the best move was to buy a place. I had the right idea and was going to “house hack”… before that was even a coined phrase.
My plan was to buy a place and rent the rooms out to other residents while we were in training. Sounds simple on paper except I forgot the most important thing……
It was 2007 and the pre-crash market was very hot. The properties available that I could afford with a 35% debt to loan ratio and nothing down (gotta love 2007) were all run down properties except for one.
My agent showed me a great 3-bedroom 2 bath condo with granite counter tops in an up and coming neighborhood…. The price point was right and I ignored everything else…. the drug deal going on across the street, the gas station that was too scary to stop for gas, the fact that there were no grocery stores for miles etc etc etc.
I did not think to check crime reports, school ratings or spend time truly learning the market. The granite counter tops and stainless steel appliances hooked me. The place was nice and I was sold.
My Mother was not so easily tricked and recommended that I rent first. But I was all in on my first place and proud of it too.
I’ll never forget the look on Lauren’s face during intern year introductions when I told her where I bought property. She was from this town and had returned for her transitional year before her radiology residency (Her look was enough to confirm my error). My Mom and Lauren were right….
Within 6 months of purchasing my first property the entire housing market began to crash eventually leading to the great recession. The property was now worth 1/3 of the purchase price. However, things were ok for now…. I did not need to sell and I was renting the extra rooms without a problem. Lauren and I became more serious and moved in together. I moved out of my place and rented the entire place to other residents. This worked for a while….
Know Your Market
By 2012, Lauren and I were married and had welcomed our first daughter into the world. We were comfortable and living in a three-bedroom apartment. During this time we started following Zillow and putting a list of dream homes together. Lauren and I were not planning on buying until we finished residency but noticed that our list of homes on the market kept decreasing…. We decided to go see some of the homes in person (just to check them out).
During our research we found a neighborhood that we loved and noticed that most of the houses were selling at values equal to their original purchase price from 2002 and at a decreased price point from 2007. We decided that the downside of buying now was low and there was a lot of upside…. (KNOW YOUR MARKET).
Driving For Dollars
We had one problem… We did not see our dream house on the MLS. Our dream house had to meet the following criteria: cul-de-sac house, good neighborhood, good public schools and have at least four bedrooms. We found the neighborhood but not the house…. Until we drove the neighborhood….
We saw a house on a cul-de-sac with an unkept yard and a lock on the gate. We contacted our agent who was able to confirm that the property was a REO (real estate owned) property and we were able to place an offer prior to the property hitting the MLS. (Bigger Pockets would describe this as DRIVING FOR DOLLARS).
Buy right and Add Value
We would have never found this property if we had relied on the MLS alone because it would have been listed as a three-bedroom four-bath house. The previous owners had removed a bedroom to make a large bonus room and also had a “reverse loft” (think of a 1st floor room open to the 2nd floor).
We had seen other models in this neighborhood and knew that we could replace the wall, close the reverse loft and update its half bath to a full bath. This renovation added 2 bedrooms, created a large entertainment room and upgraded to a full bath. We added significant value to our house by converting from a 3 bed/4 bath layout to a 5 bed/ 5 full bath layout…. (BUY RIGHT AND ADD VALUE).
To pull this off we had to be creative because we used all our savings for the down (Lauren was still in residency and I was in my first year as an attending Emergency Physician). We applied for a SUN TRUST doctor loan the day after closing and before the property hit our credit. (Consider it a hard money loan for physicians). The loan was approved, covered the renovation costs and was paid off within two years…. The renovation added value to the property and an additional upstairs room for Daughter number two.
In 2014, I fell and things got dicey. (see The Fall). We were fine covering the home expenses thankfully due to disability insurance but covering the 2007 rental property was tough. Finding good Resident tenants was becoming more difficult now that I had been out of residency for a few years. My income had drastically decreased and there was great uncertainty about future income due to my injuries. We made the hard decision of cutting our loses and going through with a short-sale. I had never missed a payment before this moment and was very sad to damage my credit during this period. It took 6 months but the property sold for $65,000. It has not returned to pre-crash valuation…. We were one of many during this period of time. We learned a lot of lessons and came out ok in the end.
The worst and best financial decisions of 2016.
Our house built up equity quickly as the market was beginning to rebound…. We took out a second loan to build our dream backyard and pool (bad financial investment/great family investment).
The kids watched for a year while this never-ending project progressed…. And they were the first to jump in once completed. They have enjoyed the pool every summer and we have created great family memories: Birthday parties, reunions, 4th of July parties and even a Wedding….
We did not make this decision blindly. We looked at the numbers and thought about investing vs building this backyard and chose the second. It was not the best financial decision…. but there does need to be a balance between life and finances… Carpe Diem.
Know Your Short-Term Rental Market
Lauren found a great way to achieve this balance by convincing me to push the envelope and take a portion of our backyard building fund and place an offer on a property in Mammoth Lakes, California. We had always dreamed of owning a place in Mammoth.
We put 10% down on this property (50K). The initial plan was to use this property for personal use because we love the snow sports. However, it became quickly apparent that the financial benefits of STR (short term rentals) could not be ignored (Best financial decision of 2016). This property has increased in equity and short-term rentals have covered the expenses. (KNOW YOUR SHORT-TERM RENTAL MARKET). (THE EQUITY YOU BUILD IN YOUR HOME CAN BE USED TO INVEST IN ADDITIONAL REAL ESTATE).
Education and Investing
Lastly, in 2020, after forging our way through this real estate adventure we decided to take a real estate investment course with Kenji and Leti from Semi Retired MD. We learned a great deal about long distance investing and the importance of learning our market (something I really needed in 2007). Lauren and I purchased our first Long-term rental property, a triplex.
In addition, to purchasing our first cash-flowing buy-and-hold long-term rental we expanded our Short Term rental portfolio.
We especially enjoy investing in short-term rentals because short-term rentals align with our Carpe Diem MD philosophy by allowing us to enjoy our investments today.
We will share our successes and mistakes along the way and hope that you will join us and benefit from our shared experience.
PS. In addition to Kenji and Leti’s course we have read “The BRRRR Method” by David Greene, “The Millionaire Real Estate Investor” by Gary Keller, “Rich Dad Poor Dad” by Robert Kiyosaki and are avid listeners of the Bigger Pocket Podcast. All great resources.