How To Get That First Investment Property Under Your Belt

Editor’s note: Today’s Post is from our PhREI Network partner, Jordan Frey MD, The Prudent Plastic Surgeon.

Buying your first investment property can be an intimidating and scary experience…. The Prudent Plastic Surgeon helps relieve some of those fears by outlining below the steps he followed from real estate novice to investment property owner. In this post he shares his story of personal growth and admirable future goals. The Prudent Plastic Surgeon has accomplished more in his first post graduate year then most physicians and his story is inspiring. I hope you enjoy the read.

Published by The Prudent Plastic Surgeon on February 11, 2021

Selenid and I love our first investment property. We had been looking for our second real estate investment property for the past couple of months, maybe more. For so long, we didn’t have great success. We saw a ton of properties and put in offers on 4-5 but none were accepted.

(Actually when I wrote this post, we still had not had any offer accepted! But as of 2 weeks ago, we are under contract on another great duplex. More on that to come!)

But, that’s the beautiful thing about investing in real estate: there are no called strikes. We screen and analyze properties based on our criteria and make offers based on numbers that work for us. If we don’t get them accepted on our terms and criteria, we move on.

Regardless, this whole process looking for a property has got me reflecting back more and more on our journey from knowing nothing about real estate to become bonafide real estate investors. Back to when we bought our first investment property (here is an insider’s deal analysis of the property).

I want to share my reflections with you all because I know there are many of you who love the idea of using real estate to achieve financial well-being and, even, freedom. But, I also know that there can be a lot of worry, fear, and self-doubt when it comes to starting this journey. I know because I felt it.

However, I overcame this and got into the arena (to borrow the metaphor from Teddy Roosevelt). And you can too!

first investment property

On May 1, 2020, I couldn’t have told you what cash-on-cash or cap rate meant

I definitely would not call myself a real estate investor nor tell you that I harbored the slightest inkling that I would become one.

Yet, just three months later, Selenid and I were in the process of closing on our very first investment real estate property. 

What Kool-Aid Did I Drink During Those 3 months before buying our first investment property?

As you know, on May 1, 2020, I was a fellow in microsurgery at NYU. I was financially clueless. I had dug myself a huge financial hole and I didn’t know where to begin. So, I had avoided it.

But then I unburied my head and started learning as much as I could about personal finance. I realized that as I increased my financial well-being, I overall felt a lot better and even less burned out.

I dedicated myself to my financial education and the goal of working towards financial well-being.

So, in terms of Kool-Aid, there were a lot of different flavors. Some White Coat Investor, some Millionaire Next Door, some Semi-Retired MD, and a sprinkle of Financial Success MD. It all added up and now I can’t get enough.

Why Real Estate?

I initially envisioned that my personal investment plan (see my full plan here) would largely incorporate a high savings rate (20-40%) and investing in broadly diversified, low cost index funds

This is still a good plan. However, as I explored more of the financial landscape, one vehicle kept coming up…real estate.

Click here for my free Physician’s Guide to Real Estate Investing!

Real estate investing for me always seemed way too complicated and way, way too risky. Plus, I really knew nothing about it. Kind of like most people who poo-poo real estate investing…

But I like reading so I felt that a couple books on the topic would be a good investment towards my future. If I decided real estate investing wasn’t for me, I would only be out $30 and a few hours of my time.

I read three books: Rich Dad, Poor Dad by Robert Kiyosaki, The Millionaire Real Estate Investor by Gary Keller, and The Doctor’s Guide to Real Estate Investing for Busy Professionals by Dr. Cory S. Fawcett. We signed up for a great course by Semi-Retired MD called Zero to Freedom Through Cash-Flowing Rentals. 

I learned all about the benefits of real estate investing including cash flow, equity build up, and tax advantages. 

I was in. My wife and I amended our written personal financial plan such that 1/3 of our 41% savings rate would go towards real estate investing.

Learn as Much as You Can…But Don’t Let That Stop You from Taking Action

Obviously, education was the first step. Like I mentioned above, we read innumerable books and blogs. We took an extensive online course and picked the brains of local investors that we contacted.  We learned as much as we possibly could about our market of Buffalo, NY (my hometown and our new home after moving from NYC).

The toughest step of all was now in front of us. We actually had to act. 

This is the step where most prospective real estate investors get held up. However, every source that I read emphasized beyond emphasis that there was never a time when you will feel ready. You have to jump in at a certain point. 

So, we jumped.

Be Creative, Especially with the First Investment Property

A big hurdle for most people is feeling they do not have enough money to get started investing in real estate. 

The hard truth is that there will never be a good time to start. If you are already wealthy and have tons of extra cash laying around, you probably don’t need to invest in real estate. It’s people like you and me, who are building wealth, that should invest in real estate. And that means that in the beginning we need to get creative.

first investment property

For us, we had some retirement savings from our old jobs as a teacher (my wife) and resident (me). It amounted to about $40,000. When we created our written financial plan, we did not include these investments when planning for our future. They were icing on the cake. So, we decided to liquidate them and put them towards real estate investing.

How Did We Do It – Buying our First Investment Property?

I’m proud to say we did not hesitate or succumb to analysis paralysis. We fought against our limiting beliefs and set our goals. We will cash flow $300,000 in 5 years (notice I say we will, not we want to). Selenid and I are relentlessly pursuing these goals. 

And we’ve already taken the first big step by securing our first investment property.

I will forgo an extensive review of the ins and outs of real estate investing philosophies as I have done that elsewhere in the blog.

However, after learning about the various ways to invest, we decided we would pursue multifamily rental real estate properties offering immediate cash flow with a cushion of at least 5-10% cash-on-cash. This basically means that each year, we would get 5-10% of our initial investment (down payment + closing costs + renovations) back.

Here is a full run down of the right way (in our opinion) to screen and analyze real estate investment properties.

This set our criteria

Once we established this, we went to work looking for a property that met these criteria. It’s really quite freeing to go searching for real estate this way. You fall in love with the numbers, not the property. Find a great property that doesn’t meet your criteria and your numbers, it’s easy to walk away. You take on a Spock-like mentality (I’m obviously a total nerd).

We bugged the stuffing out of our investor real estate agent. We searched properties all the time and inquired about any that met our screening criteria using the 1% rule (estimated monthly rent should be  1% of the property purchase price). And, we viewed a ton of properties. 

We put in one offer that was rejected despite being the highest offer because we would not waive our inspection contingency. This meant that the property didn’t meet our criteria. We needed a due diligence period to investigate further. They wouldn’t meet these terms so we walked away calm and not upset (not unlike Spock).

The Ups and Downs of Real Estate Investing

Finally, we found two other duplex properties that we loved AND that met our criteria. Offers for the Property #1 were due one day and for Property #2, offers were due the next day. We ran the numbers and came up with a competitive offer for both. 

On offer night for Property #1, we got a call from our real estate agent. The sellers were wary that we wanted an inspection contingency. We assured them that we were operating in good faith (we were). 

They took our offer!

We were elated and so excited! Afterwards, we called our real estate attorney, mortgage broker, family and friends. We were real estate investors!

Not so fast.

The following morning, we were called by our agent to inform us that the seller’s attorney killed the contract. Why? Because he advised the sellers not to take an offer with an inspection contingency on the property.

We were upset. But then we took a step back and realized it for the blessing it was. This was obviously a concerning sign and likely indicated that something would have come up on property inspection. 

We would have wasted our time and likely missed out on…

The following night, we submitted our offer for Property #2. We waited and waited for so long that we assumed we did not get it. Finally, at 10 PM, our agent called. 

We got it!

During our due diligence period, we negotiated a slightly lower purchase price with success. Then we closed on the property, rented it out, and are managing it. (Being a physician landlord is WAY easier than you think…trust me)

All of this in less than 3 months for someone who started with no knowledge at all about finances or real estate investing.

Fast Forward to the Present

Now, this first property is running at a cash-on-cash of 22+%. Each month it puts $1-2K in our pocket.

More than that, we have forced greater than $100K in appreciation through business optimization and rehab. So, in a couple of months (after a 6 month seasoning period), we will have an option of pulling this equity out via a cash-out refinance. Then we can use that money to buy another property.

Lather. Rinse. Repeat.

I share this story because if I can do it, so can you! 

Just take one small step in the right direction and you are already started. Buy a book and read the first chapter. Talk to someone who has done whatever it is that you want to do. Email me and I’m happy to talk to you. Read a blog. Then keep going and set your goals. Make them big and pursue them uncompromisingly. 

Before you know it, you will have your first property under your belt too. You will be one step closer to financial well-being!

What do you think? Have you considered investing in real estate? How did you get started? If you haven’t started, what holds you back? Let us know in the comments below!

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