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ChrisGraley (29.74)

Personal investing tip #1001. Buy a crappy house at a young age.

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March 25, 2010 – Comments (15) | RELATED TICKERS: AM.DL2 , CRIS

OK, at a young age, I had made plenty of financial mistakes in my life, but this wasn't one of them.

I had to put myself through college out of necessity.  I worked full time and went to school full time. I knew that the odds were against me when I started. Especially because I didn't take advantage of any of the educational opportunities that the military offered. I was very proud of myself, because unlike most other young people in the military, I managed to save a little bit of money. Looking back on it now, I wish I had back all the money that I wasted. I sure did have a really fun time wasting it though!

I did what most college kids did and looked for ways to cut costs. I lived off of Ramen noodles, tuna, and mac & cheese for most of my time in school. I had a buddy that delivered pizzas. He got pretty much all the free pizza that he wanted. His company had coupons on the pizza boxes that the customers could collect and when they saved up 10 coupons the 11th pizza was free. When he delivered the pizza, he would collect the coupons, but his company never collected them from him. He'd give those coupons to me and I ate pizza 4 or 5 times a week. I had a lobster trap with a piece of glass on top of it for a coffee table. I had a discarded wooden spool from the cable company as an end table. I soon figured out that my biggest controllable expense was my rent. I rented from the biggest slum-lord in the campus area and I overpaid for living conditions that were barely legal. I had a big opportunity that happened during the end of my first year though. The city decided that they were finally gonna crack down on the slum-lord and he was forced to put some money into his properties or go to jail.

This slum-lord was so over-extended that he had to sell a ton of properties! He had to use the proceeds for the ones that he sold to fix up the ones that he kept. I decided that I was going to buy one of them. I finally found the best choice! A run down property selling for $17,000 right across the street from school! It had 4 bedrooms and my initial thought was to buy it myself and rent out the other 3 rooms. It soon became clear to me that once I bought this house, I was going to have to pour a lot more money than I had into it, (and it's hard to cut down even lower from the Ramen noodle diet). I then recruited my pizza buddy. His dad happened to own his own construction business and I thought that his dad might be willing to give us some free help. His dad was into it, but was very busy at the time, so we included a 3rd investor. The 3rd guy was a guy doing carpentry work to pay his way through college. So now, I only had 1 bedroom to rent. Pretty much the standard rent back then was $250 a month. Between the 3 of us we had $5,000 to put down on the house. We bought it under my name, because I was the only one of us that had any credit and we financed $12,000 with a fixed 30 year mortgage.  The payments were like $95 a month. So we had a net income of $155 from our 1 renter!

We put a lot of effort into fixing up that house considering we were all working and going to school full time. We just followed pizza boy's dad's instructions and took one thing at a time. His dad came out and helped us with the big things, and buddy #3 out-worked myself and pizza-boy about 2 to 1. When we graduated, we sold the house for $54,000 dollars. (about 11 times our initial investment) If we didn't make a dime on the investment, it would have been much better than renting by ourselves. We were able to eat like human beings and we weren't just handing our money to someone else anymore.

I guess the point that I'm trying to get across, is that in most situations, we are all just following the same set of rules that everyone else does. We do it because we are spoon fed answers from people that we respect. That chain of thought is like a railroad line! You will get to a destination every time and you don't know if it was what you were expecting until you get there. If you can think ahead enough about what that destination might be like, you might get farther ahead of the people waiting for the train to stop.

It took me very long time to learn these 3 things. 

1) Live below your means.

2) Work hard towards something. 

3) You don't lose when you make a mistake. You only lose when you make a mistake and then give up. 

 

I am very blessed! I have overcame a lot in my life, and I know that I can overcome more.

I'm not special, you can do it too! 

I can't tell you how to think, but I can tell you that you have to think. 

I wish everyone luck. 

 

15 Comments – Post Your Own

#1) On March 25, 2010 at 12:48 AM, binve (< 20) wrote:

Chris, that is an *awesome* story! Thanks for sharing man!!

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#2) On March 25, 2010 at 12:58 AM, Starfirenv (< 20) wrote:

+1 for this Chris -"If we didn't make a dime on the investment, it would have been much better than renting by ourselves."  Thats the elusive intangible.
And +10 for this-"

"I am very blessed! I have overcame a lot in my life, and I know that I can overcome more.

I'm not special, you can do it too! 

I can't tell you how to think, but I can tell you that you have to think. 

I wish everyone luck."


Do your book. Could come in handy.  Regards.

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#3) On March 25, 2010 at 1:08 AM, Br0oklyn (< 20) wrote:

Thanks Good Luck 2 You 2.

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#4) On March 25, 2010 at 1:25 AM, Mstinterestinman (< 20) wrote:

I agree I am planning on buying a house and when I finish school maybe picking up some more real estate. Really leaning towards starting my own real estate development company

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#5) On March 25, 2010 at 2:55 AM, ralphmachio (24.78) wrote:

I am planning on buying a house if prices dip significantly from here. 

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#6) On March 25, 2010 at 8:48 AM, dwot (69.85) wrote:

Good story, but missing an important part of the advice, "at a good price."

 Buy a crappy house at a bad price and you'll have a different outcome.

Vancouver's bubble of 81 had lots of young people buying crappy houses and paying for those mistakes for years.

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#7) On March 25, 2010 at 9:25 AM, catoismymotor (45.25) wrote:

I regret that I have but one Rec to give.

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#8) On March 25, 2010 at 10:08 AM, ocsurf (< 20) wrote:

Sounds alot like my college story except I didn't have a friend that delivered pizza, I had a friend that was a bartender...free beer!!

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#9) On March 25, 2010 at 10:19 AM, kdakota630 (29.50) wrote:

Great story, Chris.  I wish I was that self-sufficient when I was in college, but I'm doing my best to instill those lessons with my own three (soon to be four) kids.

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#10) On March 25, 2010 at 10:58 AM, whereaminow (< 20) wrote:

Great story Chris. Thanks for sharing!

David in Qatar

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#11) On March 25, 2010 at 11:13 AM, HooDaHeckNose (95.94) wrote:

Great story and a refreshing change from the constant Gloom and Doom.

Pay attention to what DWOT wrote, it is an important piece of the equation. If the price is wrong then all of the sweat equity in the world can't fix it. Unfortunately, there are a lot of people who got into the whole house flipping craze at the wrong price and learned that lesson the hard way.

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#12) On March 25, 2010 at 12:51 PM, belfairinvestor (29.11) wrote:

I'll echo the comments of Dwot and HooDaHeckNose: not all real estate is an invesment. I am a construction company owner by day(and night I guess), and the mistake I see most amatuers make in real estate transactions is overspending. The vast majority of people cannot quantify total project costs because of ignorance, overzealousness, or inexperiance. All properties are not equal, and even most contractors underestimate costs. A few hundred here, a few hundred there, pretty soon you've overspent by 50%. I see it everyday on new custom buildings and especially remodeling.

I believe the only way to net  gain on any real estate improvement investment is to perform the entire labor line by owner. People not skilled with their hands are doomed by the overhead and profit of professionals. By the way Miguel and his buddies who will "do it for $XYZ" don't have a clue, and will most likely leave you with a real POS.

The story Chris outlines above is the only methodology I've used to successfully invest in real property for the last decade.

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#13) On March 25, 2010 at 2:43 PM, ChrisGraley (29.74) wrote:

Agreed. This is just like any other investment. You have to buy it at a low enough price to make a profit and you have to understand all of the risks involved.

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#14) On March 25, 2010 at 5:34 PM, walt373 (99.80) wrote:

Going off of what the other guys said about not overpaying... I think this was pretty key:

The payments were like $95 a month. So we had a net income of $155 from our 1 renter!

I don't really know much about real estate but if you can make more income from the house after you've bought it and rented out 1/4 of it, sounds like a good deal.

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#15) On March 25, 2010 at 6:14 PM, ChrisGraley (29.74) wrote:

We put down a big down payment. Also, all of that income was spent on fixing up the house. We invested even more on top of that as well. 

We probably took in $7,000 in rent over that time. We spent about $10,000 fixing up the house. 

$5,000 Down Payment +

$3,000 Net for repairs =

$8,000 Total investment (+ a whole lot of time)

We walked away with about $40,000 or about a 500% profit.

I put in a little more money than the other guys, so my share was $15,000.

Also, before I bought this house, I paid a home inspector $400 to spend a day with me looking at this and 4 other houses. His opinions made my choice in houses a lot easier and it was money well spent.

So my share was more like $14,600.

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