That One Time I Bought Real Estate As A Freelance Musician

The only way to fail is to quit.

On June 30th, 2017 I closed on a 2br/1.5ba condo in North Dallas. The entire process started just shy of two years ago. In the summer of 2015 you could find me traveling and performing including a tour with Mente Clara along the west coast, a week in Los Angeles, and a visit to Italy with my family.  As fulfilling as that summer was musically, emotionally, and historically (discovering my Italian roots) this would be the first time my bank account was essentially depleted. I learned to save at a young age and always prided my ability to maintain financial stability. This would be a rare moment in my financial life, but as they say "the only way from here is up" (or something like that.)

Among other awakenings throughout the years, my interest in financial freedom stemmed from a self-development book my mother recommended titled The Slight Edge by Jeff Olson. This would kickstart a shift in mentality, the start of automatic deposits into a savings account and Roth IRA, and a journey into a myriad of books, podcasts, articles, lectures, etc. including Think and Grow Rich by Napoleon Hill, Rich Dad Poor Dad by Robert Kiyosaki, The Seven Spiritual Laws of Success by Deepak Chopra, The Life-Changing Magic of Tidying Up by Marie Kondo, over 100 episodes of the Get Rich Education (misleading name, it should be called Financial Freedom Education) Podcast by Keith Wienhold, and many more.

Most of my research pointed to real estate as an unconventional approach to investing. Homes, buildings, apartments, trailer parks, and land are real assets with real value. They have the ability to cash flow when using the correct strategy. The basic idea behind financial freedom is to accumulate enough cash-flowing assets to outweigh liabilities therefore achieving mostly passive income. I was tired of renting and wanted to switch my home from a liability to an asset so I joined the Real Estate Investors Association of Dallas and started attending meetings to learn more about the process. They offered a free 3-day workshop detailing the art of real estate investing which turned out to be a massive funnel for their $50,000 coaching (most seminars and self-proclaimed gurus are funnels.) But, I learned a lot and continued to explore my options in real estate. I studied with my close friend and colleague Jason St. George and together we dove into everything we could find on the subject including the Bigger Pockets community which is genuinely focused on sharing knowledge and resources to others wanting to get into real estate. 

At one point I learned about FHA mortgages which allow for buyers to put 3.5% down as long as you live in the home for at least one year which would be perfect for me having less cash on hand. So I looked into purchasing a four-plex to rent three of the units and live in the fourth. With an FHA loan I could buy a $400,000 property with only $14,000 plus closing costs which sounded amazing considering the other three units would pay for the mortgage. This is where the obstacles of real estate began. I learned as a self-employed musician who writes off most (if not all) of my income with business deductions, my taxable income reflected zero or negative income. Most banks require a debt to income ratio of 45% meaning if you earn $1,000 a month with no debt you could afford a monthly mortgage payment of $450. Thankfully I have no debt, but having no documented income changed everything.

I quickly learned that conventional mortgages were not an option and eventually found an investor loan willing to use my bank statements to determine my income at a higher interest rate (6.625%.) The catch was I had to put 20% down on the property so a four-plex was no longer an option. At this point my mother offered to loan a portion of the down payment so I wouldn't have to wait another two years to save more. I started looking into duplexes, but prices in Dallas are inflated and I wasn't finding anything worth buying that would have any chance of cash-flowing. Then I switched to single family residences in the hopes of living there, fixing it up, and eventually renting it out. I discovered West Dallas near Trinity Groves as a potential location considering the massive development in the area thanks to the Margaret Hunt Hill Bridge and The Trinity River potentially transforming into a park. The problem with West Dallas is most of the properties are city owned and built by charities for low-income families which I first thought would be perfect for my situation. It turns out there are limitations as to how much those properties can sell and rent for which is not viable as a long-term investment. After eight months of searching, failure, and rejection I turned to condominiums thanks to the suggestion of my sister-in-law. 

The first day looking at condos I found the property I would eventually purchase. Closing on a property is one of the worst experiences I have ever had, especially considering I was traveling most of the time.  The seller made things difficult for me as well as my lender. Everyday went from "we aren't going to close in time and you've wasted your time" to "good to go!" Back and forth everyday like clock-work. I developed a numbness to things going wrong which in a way strengthened my resolve to achieve my goals. Now that it is over I can focus more on music as I wait two years to develop rental income, landlord experience, save for another down payment, and start paying my taxes quarterly to show true income for the next property. It will only get easier from here. I learned so much from this experience particularly the idea of welcoming failure as a means to succeed.

I want to thank everyone for their support, wisdom, and lended ears to my plans. My advice to the self-employed seeking financial freedom is to keep learning and growing. The path from A to B is filled with barriers to entry, but there is a way through I promise!

 

Until further notice,

Spenser

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