Cash flowing real estate ownership has been a huge (and largely accidental) part of my journey to financial freedom. I’ll share this portion of my story with the BIG caveat that real estate isn’t for everyone and it doesn’t always work out for everyone. That said, the fact that I was able to make it work with zero knowledge on a tiny salary ($35-$40k) in one of the most expensive cities in the world (New York), should give you hope that if you so desire and you do your homework, you have a very strong shot at getting a boost along your path to freedom via real estate, you can do it. If you read this portion of my story and it doesn’t resonate with you, no problem, it doesn’t have to be real estate – you can choose whatever you’d like as long as you have an addditional stream of income, or two, or three, or four, or five in addition to your W2 “cubical” income.
As for me and my house – I chose real estate as my catalyst to financial freedom. Looking back on it, though, real estate kind of chose me. I didn’t set out at 23 to become a millionaire by investing in real estate, it sort of just happened once I got a taste of the glory of passive rental income after buying my first property.
For me, my entrance to property ownership boiled down to a combination of good savings habits, frugality, and a love of Harlem. I was in my early 20s living in NYC – a lovely little neighborhood in northern Manhattan called Harlem. My first place was a basement room with no windows in a beautiful 3 level brownstone right across morningside park from my alma mater, Columbia University. The rent was $500/mos including utilities.
In hindsight, that first move out of college to live with house mates and take a cheap basement room was my first step towards freedom. It allowed me to save a ton of money each month. I didn’t make a ton – my first job paid $35k/year, but when your rent is only $500/mos including utilities, you have plenty of wiggle room. I was also lucky to have some help from my family paying for college, so I only had about $10k in student loans. My only bills at that point were rent, student loans (~$200/mos), food, a monthly metro card for public transit ($63/mos), cell phone, and a small fun budget. If you’re in your early 20s right now – please SAVE and continue to live like a student for as long as you can tolerate…this will help you gain your freedom faster.
I looked up and 2.5 years after gradtuation I had almost $25,000 in my savings account! At this point I’d moved out of the basement and had been living for about six months in my own, very shitty, one bedroom apartment where the rent was $850/month. I was still in Manhattan/Harlem, but had moved about 30 blocks north. It wasn’t as nice as the brownstone, but it was all MINE and it was on a beautiful street called Convent Ave that I loved to stroll every evening after work – who needs a gym in Sugar Hill?
At this point I’d shifted roles at work and amped my income to about $40k. Out of boredom, I started browsing craigslist and the neighborhood for apartments for sale. I knew I wanted something nicer, but I told myself if I was going to pay more than $1,000/mos for housing, I wanted it to be a mortgage rather than rent.
After months of looking, I spotted a 2 bedroom/1 bathroom co-op on Madison Avenue for $145,000. That was just barely within my budget so I contacted the lister and set up an appointment to view the place during my lunch break. I’d lived in Harlem for years but hadn’t ever been to that particular pocket…it was a bit further east than me and my crew usually ventured. I got off the train on 125th, it was a quick 15 min ride from work, and walked 2 blocks to the building – it was lovely…across from a park and with a doorman. The owner buzzed me in and I saw a clean lobby, a courtyard, and a laundry room. All of these things are GOLD in NYC. Then they let me into the apartment, it was was ugly – dirty powder blue carpet and piles of junk lining the walls from a previous tenant. All I saw was SPACE (1,000 sq ft) and a park view from every window. I wanted it.
The bad news – it was a strict co-op and they’d already rejected 4 previous applicants. They wanted someone with stable employment able to put 25% down (and have reserves) with a 700+ credit score. Also, while I could just barely afford the mortgage at $145,000, there was also a $973/mos HOA/maintenance fee! I sadly told the owner that I loved the place and met all the other requirements, but that the price + the HOA fee + student loans was too much for me. I kept looking but also kept thinking about that apartment and crunching numbers to see how I might make it work. As it turns out, my genuine brokeness was a great negotiating tactic! The realtor called me a week or two later and said “Can you make it work for $100k?” Um, yes, yes I can!
All that saving and scrimping came in handy – I had almost exactly 25% down. My many years living in Harlem (no where else would take me – yay racism!) and love of the neighborhood helped the board be assured that I wasn’t a speculator. My parents had just sold their home and were able to loan me a bit of cash to show that I had a cushion in my account after the purchase. I returned that within the year. The ugly carpet and tenant mess kept others from seeing the unique value of the place. Several co-op board interviews and almost 6 months later, I owned my first home!
Freelennial 