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Real Estate Year in Review 2021 Part. 1: Properties We Sold

Real Estate Year in Review: Part 1

Summary: Each year I put together a real-estate-in-review blog post. Writing this post helps me reflect on the real estate moves we made over the course of the year. As well as the motivations behind them and their results (thus far anyway!). I first started this series at the end of 2019 to give our followers transparency into our portfolio building process and progress. The goal is to give you the opportunity to glean insights from what we are doing. And to learn from our experiences scaling our real estate portfolio and become better investors yourselves. With that, let’s dive into 2021!

[Disclaimer: We are not accountants, lawyers or financial advisors, so please consult your own team of professionals about the topics covered in this article.]

In 2019, I decided to start documenting our yearly real estate moves to transparently share our real estate journey with followers of Semi-Retired MD. 

My goal was simple: share our journey, including the ways we are shifting and growing our portfolio in order to give our readers useful insights they might apply themselves to their portfolios.To do that, I highlight our sales, property purchases and learning pearls from each property. 

If you want to check out our previous years real estate moves before diving into this one, the links are below. To check out our real estate in review from 2019, click here. To see our moves in 2020, check out part one here.

Otherwise, let’s dive right into our real estate moves in part one of this year’s post!

Properties we sold

In comparison to 2019 and 2020, 2021 was a relatively tame year. Whereas previous years we made many real estate moves and sold 4-5 properties, this year we only sold two! 

That should have theoretically meant a lot less stress with 1031 exchanges, but in this case we actually were down to the wire: entering our replacement property on the very last day of the 1031 exchange cut off date. Luckily we made the 1031 cut off, so we didn’t have a huge tax burden. It was a great reminder, though, to get our replacement property(ies) locked up before putting our properties on sale. 

Investment Property Sale 1: Single Family Home in Everett, WA 

Facts:

Purchased for $260,000 Spring 2016

Sold for $465,000 Summer 2021

Rehab $50,000 over three months in Spring 2021

When Kenji and I purchased this single family home in the second year of our investment journey. We loved that it was located in the heart of Everett, WA. It consisted of a three bedroom, one bathroom house as well as a large double garage and three plots of land. It had been on the market for a while. Mainly because it had an undesirable layout. You had to walk through one of the bedrooms to get upstairs to the other two bedrooms. 

At that point, we were fresh off of buying a duplex down in Auburn, WA where we were renting the garage for $250 a month. We believed that this garage, which was significantly larger and located in a prime location near downtown, could rent for more. Since it sat on an alleyway, it had a separate entrance that a renter could use without disturbing the tenants in the house.

Although our property managers had never rented a garage (and initially encouraged us to allow the tenants in the house to use it for free), we were determined to make it work. We got separate electrical ran to the garage and secured it with a roll-down door and closing up the windows. In the end, we were right, and for the majority of the time we owned this property, we did rent out the garage to a guy who used it for car storage for $450 a month.

In addition, the Everett house sat adjacent to a commercially zoned area. If we waited enough time, we reasoned, the land might eventually be re-zoned (we determined that it was NOT worth the effort or cost to attempt to actively get it re-zoned prior to purchase).

The three plots of land were attractive, since we thought we might be able to raise the garage eventually and build a duplex in the area. Before buying the property, however, we did not pursue any of the details of the building plan.

What actually happened

Evaluating Adding an Addition

What actually happened was after close, we obtained a survey and found that the neighbor was encroaching on our third lot by a fair amount, and that it had been that way for some time (their fence was on our property). This meant we were going to have to have a boundary dispute with our neighbor to be able to build anything. 

In addition, we found that at most, we could fit one additional duplex on the property, and it would have to be where the garage was located. When we did the numbers we found, between the cost and time that it would take (and taking into account the amount the garage was pulling in at that point without any additional expenses), it just wasn’t worth it.

So, in the end, we held onto the house (which rented up to $1950 as is) and the garage (rented at $450) and left both unchanged. And, over the course of almost five years, the zoning did not change.

Selling The Property

In the Fall of 2020, the housing market was a bit crazy. As part of our growth play, we thought, why not list it for sale and see what happens? We listed the property for $350,000 and had a lot of interest, but in the end, everything fell through given the undesirable layout. Since we didn’t need to sell, we continued to rent it. 

Then, in the early Spring of 2021, we had an unsolicited offer for someone to purchase the property at $350,000. This almost closed, however, again, the weird layout meant that the buyer kept asking for more and more discounts, which made the deal fall apart. In the meantime, the renter’s lease had expired, and they were scheduled to move out.

At that point, our agent/contractor proposed a unique solution. Why not spend a couple months fixing up the place and then sell it at a markup? This would be a sort of “delayed/long flip” since we had, up until that point, not really improved the property. We agreed.

During the planning process, we were able to figure out a way to build in a hallway, meaning that the walk-through bedroom was now smaller, but no longer walk-through! The whole property had a facelift…and we now had a real three bedroom house.

When the house was listed, it was a multiple offer situation. After a bidding war, we sold the property for $465,000, over $100,000 more than we were selling it for just three months before and after we had rehabbed it for $50,000 (and much of the rehab was a tax write-off).

We negotiated a 60 day close for the property. We also let the new buyer move in to live in the place early. This allowed us the extra breathing room to find a 1031 exchange opportunity, which ended up being absolutely necessary, as noted above.

Learning pearls: Get a survey before your purchase (especially if you think neighbors might be encroaching on your land!). You can rent garages to separate tenants from your main building and charge a premium. Even if your property manager doesn’t think it’s possible. Garages with separate entrances are great candidates. Find out as much information as you can about your ability to build. Run the numbers before you buy a property. Treat the ability to build on bonus empty lots as icing on the cake instead of an expectation. Zoning may take a long time to change. A delayed/long flip can be an amazing opportunity to build equity while harvesting tax benefits and cashflow in the meantime

Investment Property Sale 2: Duplex in Spokane, WA

Facts:

Purchased for $140,000 Fall 2017

Sold for $410,000 Summer 2021

Rehab approximately $60,000 at time of purchase, adding 2 bedrooms and one bathroom in the basement of each side.

Kenji and I purchased this property sight unseen, during a vacation in Hawaii. During the inspection, our agent noted that the property, which was a two bedroom/one bathroom on each side duplex, had high ceilings in it’s unfinished basement. We could probably add bedrooms. As part of our our “all hands on deck” strategy, we had a contractor see the property during the due diligence period. He agreed, there was space for an additional two bedrooms and one bathroom per side. Our property manager was also on site during the inspection. They noted that this would bring our rents from somewhere around $900 a month to $1100 a month. Finally, we also discussed this property with our contact from the supported living program in Spokane. We were told that they would consider the property at $400 a room for rent once the rehab was completed. It was a no brainer.

What actually happened

Property Rehab

In the end, it took about $60,000 and two months of rehab. We converted the basement, added several egress windows and ultimately doubled the square footage, bedrooms and bathrooms of this property. Our agent was kind enough to check out the contractor’s work at the end of the project. He was impressed by the quality of the expansion.

After the rehab was complete, it took several additional months for the supported living program to make a decision about whether they wanted to add the property to their portfolio. This meant the property unfortunately sat empty for several months without collecting rent. We felt that it was worth the wait given the additional benefits of renting to supported living. In the end they decided to rent three out of the four bedrooms, bringing in $1200 per month per side in rent. We were disappointed they did not consider renting all four bedrooms. However, they requested that we allow for two common rooms given the size of the units and the number of bedrooms. We agreed.

Because the property was rented to supported living, we had the additional advantage of feeling great about providing housing for those in need. We also had no property management costs, no utility costs and no landscaping costs. This brought the cash-on-cash return to the mid-20s. Even taking into account the rehab and the fact we were only renting three bedrooms a side. Not too shabby. 

Selling The Property

By the time we sold the property four years later, we pretty much had paid off the initial investment through cashflow. Not only that, but we had sold it at a large gain given the forced appreciation and market appreciation. 

And the real kicker, we never even saw the inside of the property. We did a drive by once to check out the location several years after we purchased it. That was it.

Kenji wanted to sell the property this year because supported living decided they no longer wanted to rent it. Also, he was concerned about the future of the neighborhood. We had a property manager take a look at the building. He noted that the neighbor’s house was in pretty bad shape with trash on the premises. We had heard similar complaints from the supported living company as well. Given that the market was red hot, we thought we might as well proceed with offloading this property and continuing to grow our portfolio of larger buildings. We priced the property to sell at $385,000 and ended up with a bidding war and sellers even appraisal contingency waivers. 

Reflecting on the Sale

As I sit here six months later, I could second guess the decision to sell. Since the market has only continued to climb (Redfin now says this property is up to almost $500K in valuation). However, I could just as easily be sitting here with a downturn having taken place, kicking myself too. In the end, I never regret the sales. Because we always roll them into 1031 exchanges and continue to grow our wealth in other opportunities.

In the end, this property and the single family home in Everett helped form part of the down payment for our 42 unit purchase. That property, like the Spokane duplex, has also continued to gain in market value these last few months. 

Learning pearls: You can buy a property sight unseen. And complete a major rehab project from afar if you have the right team in place. Adding bedrooms and bathrooms is a great way to force appreciation. Egress windows can make building bedrooms in a basement possible – and don’t cost that much either. Look for tall ceilings as a potential source of additional living space. Supported living is a great program to partner with to house intellectually disabled people and rent to them by the room. Don’t second guess your sales decisions – it will lead to suffering, and you cannot predict the market. Instead, 1031 your proceeds into the next deal to take advantage of continued market growth and other opportunities for forced appreciation.

Since I waxed a little poetic on our property sales, we’re going to split this article into three parts to thoroughly go through our real estate year in review. Stay tuned for parts two and three!

Conclusion

There you have it for Part 1 of our real estate year in review, two sales. Lots and lots of learning opportunities, and some incredible forced and market appreciation. Hopefully you’ve gained some insights that you can apply to your own portfolio from part one of this post. Now let’s head into part two!

Want to learn how to build a significant source of income from investing in real estate while reducing your taxes? Join us in one of our courses, Zero to Freedom, or Accelerating Wealth. 

Have you found a way to creatively fund your real estate portfolio and achieve financial freedom? Join the conversation! Follow our Semi-Retired MD Facebook page and join our Physicians (for MDs or DOs only) or Professionals group!

Semi-Retired M.D. and its owners, presenters, and employees are not in the business of providing personal, financial, tax, legal or investment advice and specifically disclaims any liability, loss or risk, which is incurred as a consequence, either directly or indirectly, by the use of any of the information contained in this blog. Semi-Retired M.D., its website, this blog and any online tools, if any, do NOT provide ANY legal, accounting, securities, investment, tax or other professional services advice and are not intended to be a substitute for meeting with professional advisors. If legal advice or other expert assistance is required, the services of competent, licensed and certified professionals should be sought. In addition, Semi-Retired M.D. does not endorse ANY specific investments, investment strategies, advisors, or financial service firms.

Do you want to learn how to creatively fund your real estate portfolio and achieve financial freedom? Join the conversation! Follow our Semi-Retired MD  Facebook page and join our Doctors or Professionals  group!

Semi-Retired M.D. and its owners, presenters, and employees are not in the business of providing personal, financial, tax, legal or investment advice and specifically disclaims any liability, loss or risk, which is incurred as a consequence, either directly or indirectly, by the use of any of the information contained in this blog. Semi-Retired M.D., its website, this blog and any online tools, if any, do NOT provide ANY legal, accounting, securities, investment, tax or other professional services advice and are not intended to be a substitute for meeting with professional advisors. If legal advice or other expert assistance is required, the services of competent, licensed and certified professionals should be sought. In addition, Semi-Retired M.D. does not endorse ANY specific investments, investment strategies, advisors, or financial service firms.

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Hi, we’re Kenji and Leti

we provide coaching and mentorship for doctors and high-income earners

Several years ago, we were newlyweds working as full-time hospitalists. On paper, it looked like we had everything: the prestigious careers, the happy marriage, the luxurious rental home, the cars, etc.

But in reality? Despite having worked for several years, we had very little savings. Despite our high income, we had very little freedom in terms of time or money.

One thing was clear: we had to do something.

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