Thank you Warren Buffett

Time to Buy

We moved into our new home in June of 2013! I soon forgot about the opposition that I had to moving into a larger, more expensive place and began to set up my man cave! We subscribed to HGTV magazine and spent the first six months furnishing our new place! Anyone ever tried decorating with your spouse? That’s an entirely different post!  Upon entering 2014, we could see that our first rental property was profitable even after paying taxes, insurance and professional management fees.  Mrs. Lee and I began to think this could be an excellent long-term retirement strategy!  It had been decided, we would buy a single-family home (SFH) every year for the next 15 years! A little ambitious I know. Our realtor was definitely on board when he learned that we were interested in purchasing more properties.

Nebraska Furniture Mart

Timing was great as there were major economic development plans for an area nearby. The theme for the area would be destination shopping. This would include retail, restaurants and hotels! He told us that this would all be driven by Nebraska Furniture Mart!  “Nebraska Furniture Mart”, we repeated, slightly confused? “Warren Buffett owns it!”  Say no more! We began our search for a 2014 investment immediately.  If you are familiar with Dave Ramsey’s 7 baby steps you know that maintaining an emergency fund is a crucial part of his debt free strategy. Soon our emergency fund became our default “rental property fund.” In the first year of our marriage we realized the importance of joining our finances and living debt free. This enabled us to put any bonuses or salary increases into savings. We’ll be sure to address joint finances in another post. 

Ground Breaking 

We looked as close as possible to the area where the ground had been broken for Nebraska furniture.  There was nothing there but dirt and the building was at least a year away from being completed.  Initially we had hoped to find another SFH just like our first home.  After all, our ideal tenant was just like us, a family looking for a diverse middle-class community with access to good schools.  The market had begun to change.  We would need to adjust our criteria.  Our second rental would be a bit older and lack the polish of having the updated finishes we added while living in our first home.  Nevertheless, the location and square footage on a single story made it a good buy.  After negotiating a price reduction based upon the inspector’s findings we closed on the house.  

Make Ready

Before listing the property for rent we replaced the garage door opener and hot water heater. Both items were showing their age. When possible, believe it is better to be proactive when it comes to repairs. We also added 2 inch blinds throughout the house and ceiling fans with light fixtures in the bedrooms. The previous owners only had plug in lamps. In less than 30 days the house was move in ready.  As part of our agreement with our realtor he identified a viable tenant at no additional cost to us.  Our property manager interviewed and approved of the candidate prior to move in.  We had a tenant before the first payment was due.  Keeping the 1% rule in mind, this property was also purchased to cash flow. 

Done Deal

Don’t get me wrong, it was by no means easy.  I have yet to meet a real estate investor who considers the financing process fun!  Also, we negotiated a reduction in price knowing that the property would require foundation repairs, a new roof and a new fence at some point in the future.  At that time, we could get a residential loan on an investment property for less than 4%.  We’ll talk more about our thought process and financing requirements later. 

 

Take Away:  

  1. Research the economic development plan of the respective investment city. 
  1. The 1% rule is a rule of thumb based upon our market. Work with a realtor or local investor to understand your market. 

 

 

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