Summary

This is a short story about how we started investing in real estate. I am writing it up because it comes up often, and as time goes by I remember less of it. So on the one hand, I’m rescuing the story from oblivion. But also I’d like to give my conversation partners a little bit of background that formed my way of thinking about real estate. And, given that I have told this story so many times makes me consider it worth writing down.

Before the beginning

Letting you know a little bit about where I’m coming from. I was born and raised in a country that no longer exists. It was a communist country, which among other things meant that not only did I not learn anything about investing, nor did I have anyone to ask, I also inherited a notion that any money matter is irrelevant at best, and the work of the devil at worst. And by “devil”, I mean the capitalist enemy of the people, because religion was a no-no.

This possibly overlong paragraph is to say that I knew nothing about money, its management or building wealth. My ideal was to become a good cog in a large machine and spend my working days like that.

I met my life partner Marija in April of 2000 while we were both students. Fast forward to today, we have spent more than half of our respective lives together. By a mix of privilege, hard work, knowing people and sheer dumb luck, in 2008, I started working for Google.

In 2013, Marija and I bought our first place together. Unfortunately, not knowing any better, I sold all my Google stock to cover the downpayment. My thinking was that the stock grants were “funny money” and I didn’t want to dip into any of our savings… In retrospect, that was not wise. Google stock has increased in value 16-fold since then if my math is correct, so by selling all of that early, I gave away so much of our family wealth then and there. Later, I decided that I would educate myself and never repeat the same mistake again.

But, a few fortunate events happened as well. We did not overpay to buy our first place. In the years that followed, this gave us some extra income that we would put towards real estate investment. And Google did not fire me, which allowed us a comfortable lifestyle, in which we could have all the basics of a middle class life, and still have enough to put towards our future. And, at long last, Marija was pregnant with our first child. If you followed along, you may have noticed that it took us quite a bit of time to get there, and Emma’s birth saw us edging towards our respective middle ages.

How it began

As our daughter Emma was born, providing for her future started taking ever more of my mental energy. I started to feel like some of my faculties and agility have slowly started to taper off and decline. I started feeling old. And I started seeing evidence of early onset arthritis. I’d get quite a bit of joint pain here and there. Initially they would be years apart, but have slowly started being more frequent. So I started thinking about how to provide for my family should I become unable to continue working as a software engineer. This line of thinking got me to investing, and then to real estate, which was the only form of investing that I could understand, given my complete ignorance of markets in particular, and capitalism in general. A second reason that drew me to real estate was that I could admit I enjoyed the little puzzle that was the purchase of our San Francisco home.

I am no longer sure how exactly I persuaded Marija to take the plunge with me and buy our first two single family investment properties. Coming from a similar background as myself, she had the same built-in ethos of risk-aversion and saving as I had. I guess that what prevailed was that I started feeling the urgency of doing something, as I started worrying about the progression of the illness, and I’m usually the family pessimist. I also had the ear of a few, now ex-members of Google’s real estate investor group, who were kind to talk to me live and let me in on the necessary first steps in investing. We decided to go to a market we knew very well, the Houston TX metro area. We bought two unremarkable houses in a span of about 3 months, and we were finally committed. but all of that would have surely failed, had Marija not been brave and decided to play property manager from afar, against conventional wisdom. This was most fortunate, as I do not think I’d have been able to pull the same feat off, while working for Google full time. In retrospect, the conventional wisdom of not managing property outside of the two-hour driving distance from where you live may have come from an era when it was not as easy to get a hold of people if you need to hire them to do something for you. So we got to learn whether we liked the whole being a landlord business. And after some time of learning the ropes, Marija got quite good at property management, and the two of us discovered that we really like the work. We also discovered that, as much as we (Marija, to be precise) to the property management from afar, it was not going to work well once we scaled up.

Don’t get me wrong, we did have our share of teachable moments. To give some examples, we hired a contractor who managed to take the money, but never finished the work. I suppose everyone has got to make that sort of a gaffe sometimes. Chalk it up to our inexperience. And there was a time when we bought a wrong size fridge, and were unable to sell it for so long that we decided to pay someone to haul it away in the end. It was a brand new unused fridge. Oh well.

A turning point

And, while this initial experiment got us the first exposure to operating real property, it didn’t seem like this first step was getting us anywhere in particular. I felt like I needed a more tangible goal. So I did what I usually do in these sorts of situations. I went overboard. At the time I was commuting by Google shuttle between San Francisco and Mountain View (in the south of the San Francisco bay). This took about 1.5 hours each direction on average. At the same time, the Nexus 5x phone that I got as a holiday gift from Google decided to disable itself due to a software bug which caused the phone to overheat during update. The phone would get so hot that it would unsolder one of it’s chips, and would stop working. Well my phone stopped working right as I intended to photograph my daughter’s preschool festival, so I had to find a different phone fast. I rushed to a T-Mobile store and found out that the iPhone was the only phone brand that I could recognize among dozens of unknown-to-me generic Android-based phone models. And since for my communist brain almost all iPhones were obscenely expensive, it was a foregone conclusion that I would be buying iPhone SE, the cheapest Apple model on offer.

Now the iPhone SE served quite well as a kiddy camera. But it’s screen was way too small to be useful as a diversion on long shuttle commutes. This is about the time when I discovered audiobooks which, unlike Angry Birds, didn’t care about how large your phone screen was. This is where my real estate education took off. I used the commute to listen through the entire real estate section of the Audible book library. I checked and saw that my library today contains over 200 books, and at least ¾ of those are in some way related to real estate, accounting, finance, and economics.

I’m not at all embarrassed to say that in my reading I got wind of the books by Robert Kyosaki. Now, I understand today that the advice in those books espouses a very particular worldview that I don’t particularly subscribe to. However, as repetitive and as questionable as Kyosaki’s books might be, they have exposed me, a good student of a communist upbringing, to the basics of an investor mindset. The concept of building wealth through thinking strategically about money placement was novel to me. These books have also allowed me to achieve the biggest victory of my investing career: to get Marija to buy into investing as a way to provide for our family in general, and to do this by means of real estate in particular. The revelation came, I think, when we realized we could plan for and hopefully achieve three important life plans: Plan A is to be rich; Plan B is to be comfortable and Plan C is to get by using investment alone. These goals would enable us to denote more time to our family and less to renting our skills by the hour to make ends meet. It took quite a while for us to find our bearings like this, but once we were both on board, we saw opportunities open up. We started attending local real estate meetups, and came across a few people who would soon become our close friends and partners by way of real estate.

A short summary of our experience

Since then, we have done a number of things. We started dipping a toe in residential multifamily by buying our first multifamily residential property. We exchanged our single family investment homes into multifamily buildings too. We found a partner and bought another apartment building, which we are now looking to trade up as well.

We had a brief foray into sponsoring syndications with a small team of like minds. We found a property, went there to inspect it, engaged with attorneys for proper documentation, and held investor presentations. All of this happened towards the start of March 2020 unfortunately. As the world entered a tailspin fueled by pandemic fears, we got extremely cold feet about our project too. We decided to pull out of the deal, leaving our student home acquisition just a dream. It was just not meant to be.

Come April, I was watching the market tank, and with them all our savings as well. I started spending long nights trying to fall asleep to no avail. I completely destroyed my sleeping habits as a result, and I’m still struggling to fix that. As a way out of that rut, I went on to complete the required coursework for getting a real estate salesperson license. However, because of pandemic-induced delays, it was not until April 2021 next year that I was able to take the test and get the license in hand.

In parallel to all of this, we figured we’d handle our cabin fever by eloping into the mountains, so we bought a second home in a scenic little settlement near the Yosemite national park. We’d live in it but rent it out short term to offset the property operating expenses. We bought a run down property and lightly rehabbed it, gaining what I estimate is about $2 for each $1 spent in renovation.

We used 2020 and 2021 to improve our multifamily properties, gaining considerable forced appreciation. We bought another multifamily towards the end of 2021 as a rather good deal despite the frothy market, too.

What the future brings

What do we do in the future? We are exploring a few avenues. We are looking to double our portfolio value in the next year. In parallel we are looking to expand our portfolio of self-sustaining second homes in locations we like. In the summer of 2021 we spent 6 weeks on the road, driving on the northern route from San Francisco to Buffalo, NY, then down South to Destin, FL, then back to San Francisco via Houston TX. This was a tourist trip, but in equal measure a scouting trip for real estate sites and opportunities. In those 6 weeks we covered about 11,000 miles driving and passed through 26 states. We came home impressed, and starry-eyed of all the opportunities we spotted while on the road.