In the 90's we had owned various businesses (I will outline these and others in a future post). Our number one reason for experimenting with something other than regular employment was to have more time with our family. Money was not a motivator for me. I just wanted to spend more time with my husband and kids, and the rat race was for rodents. I loved my job, but hated the impact that it had on our family.
My husband and I had been interested in real estate ever since we were married at the tender age of 19. That was 23 years ago (OK, so I just gave away my age). We were determined to buy a property with what little we had. As soon as I graduated from college, we bought a condo in Point Loma, by the coast in San Diego. When we were ready to move up to a real house, we wanted to rent out our condo. It was something we explored very seriously, but we didn't do it for two reasons:
1) My dad said that it was a very bad idea. This is a man who would put his money under his mattress, if he thought it would be safe, but we listened to him anyway.
2) We didn't know anything yet about the art of borrowing equity to purchase appreciable assets.
So we sold it in 1992 after the market started to drop. We would have realized a larger profit if we had sold sooner.
By then, our favorite pass time (because it was cheap entertainment for us) was to peruse all of the new developments and open houses in San Diego. We drove everywhere. We saw that some people had purchased homes from builders that depreciated during the 90's. This led us to believe that new homes were not a smart asset. By 1995, we started to notice that subsequent phases were selling for just a bit more than the previous ones. In 1996, we bought our first new home in Sabre Springs, near Poway in northern inland San Diego.
We had became quite adept at our ability to value new and resale homes. We could drive by any house, uncover a few details (square foot, number of bedrooms, lot size, age, and location) and appraise it to within a few thousand of the asking price. We would have never thought that our little hobby would become a business if it weren't for my brother.
Being in the house in Sabre Springs in the late 90's gave us an equity of about $200,000. We were feeling pretty good about ourselves. My brother came to visit one day and asked us why the equity was so valuable to us if we needed to sell our house in order to access it. Then we'd have the money, but no home. He said that he had been researching real estate investments and that we should take a serious look at it. That was about all we needed to ignite our passion even more.
We immediately started looking for something to buy. We acquired an equity line of credit for $100,000 and just followed what we were taught our whole lives--20% down and pay off as soon as possible. We looked in every neighborhood in San Diego, but the numbers didn't even come close to breaking even. My husband was working full time in sales, but I had quit my job years before to be a stay-at-home mom, so we could afford to lose only $200-$300 per month on a rental. We kept moving north to where the properties were less expensive and ended up in the Riverside County town of Temecula. We bought two Z-lot (lots so small that the eves overlap on one side) houses right away for $185,000 and $187,000 in a gated community in the heart of Temecula (they sold in 2005 for $385,000 and $405,000, respectively). Like good little children, we put 20% down on each, and, with the expenses involved, it ate up almost our entire equity line. We purchased the homes at the end of 1999. By the time we closed and found a renter, my fifth child was a week old (in a future post, I will detail my experience of buying houses and managing tenants while caring for a growing family).
Prices were appreciating well by that time, so we refinanced both homes in order to buy more. We had learned the lesson of leverage and decided that our equity would rise exponentially if we put less down and purchased more homes. We had to expand further north to Murrieta and Lake Elsinore because those home prices were even lower. Then we came back to buy a resale in Temecula. By the time we moved out here, we were able to refinance four homes for the down payment on our new primary residence and rent out the home that we left in Sabre Springs (which, if you recall, we sold 18 months later for $300,000 more than it was worth when we moved). When it was all said and done, we owned 13 rentals, nine of which I was personally managing:
- five in Temecula (two of which we flipped, but lost money on),
- two in Murrieta (one that we flipped and one we sold less than a year later--both money makers, but if we had waited just a few more months, we would have made $100,000 more),
- two in Lake Elsinore (one of which we still own)
- three in Texas (one of which we still own)
- one in Sabre Springs, which was managed by a lease-to-own agent
Here we were with lots of equity and no cash flow (except for the money that we were making selling off some of the properties). I was pregnant with my sixth child and could not handle the day-to-day management of the homes we had left, plus we needed to be able to concentrate on finding an asset that would provide us with a monthly income. So, my husband quit his job in order to focus his time on this issue. We knew that, if we didn't find something with cash flow, we could sell the houses off and live on the proceeds. But, as you already know, we purchased those fateful apartments, and the rest is history.
We did end up getting the time with our family that we so desperately desired. My three and one year olds have never known a father who works outside the home. Our oldest was able to spend his last six months at home with a full-time father before starting college. If we didn't have the hope of the performance of apartments, my husband would have never taken the opportunity to leave his stable job. All in all, we reached our #1 goal, but, as you know, it didn't quite work out the way that we had planned.
The best laid plans of mice and men . . . . .