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SHOW NOTES FOR EPISODE 179: POLICE LIEUTENANT’S FIRST RENTAL PROPERTY PURCHASE IS AN APARTMENT BUILDING
When Lieutenant David Sweeney of the Seattle Police Depart became eligible for early retirement at age 53, he realized that, with three young children, college, weddings and still more major expenses ahead, that his pension was inadequate to carry him through his retirement years. In this episode, David shares how real estate investing, and specifically multifamily investing, was exactly what he needed to jumpstart his retirement cash flow needs and to establish the foundation for a family legacy.
What You Will Learn
- Why, after examining many other options (including purchasing a franchise), David Sweeney concluded that real estate investing is the best way to fund his retirement needs
- The four main advantages of real estate investing
- The three main reasons to became a real estate agent to jumpstart your real estate investing business
- Why he felt buying an apartment building was the best way to start as a real estate investor
- Why he analyzed 400 properties before finding the right one
- How to leverage your strengths with lenders to outset your lack of experience
- The benefits of dealing with local banks over national banks
- The value of taking “massive action” when you finally decide to buy your first rental property
- 8 effective steps to getting started
About Our Guest
David Sweeney
David Sweeney, a police officer (lieutenant), real estate investor and real estate agent hailing from Seattle, Washington (although he has never tried coffee!). David has been married to his wife Maggie for 18 years, and they have 3 children ages 11, 13 and 15. David has been with the Seattle Police Department for over 30 years where he currently serves as a lieutenant in charge of reviewing police use of force. He also serves as a trainer for the department and is a certified mediator, specializing in negotiating workplace conflict. David earned his degree in Law Society and Justice from the University of Washington late in life, returning to school when he was 42 years old. He is a Distinguished Toastmaster, the highest award available from Toastmasters International. David serves as a member of the McKinlay Foundation, dedicated to helping children in need in the Puget Sound area as well as a board member of the Northwest Girls Choir. David just made his first multi-family real estate purchase, a 24-unit apartment building in Washington state and he’s here to tell us more about that transaction.
More About David
- Currently 54 years old
- Last year, turned 53, which is the minimum retirement age for a police officer in the state of Washington – made him assess his readiness for retirement
- Saw himself as more the “Poor Dad” example in Robert Kiyosaki’s book Rich Dad Poor Dad –
- Government job
- Spending 30 years trying to make ends meet for his family to provide a life for them
- At 53, started to re-evaluate his life goals:
- Where was he going
- Where he wanted to be
- Still has 3 fairly young children (11,13 and 15):
- College costs coming up
- Want to know they have an advantage in their start for life
- Saw his government pension as not providing the kind of lifestyle he wanted for his retirement years for him and his wife
- His wife is an attorney and he wants her to have the option of working in retirement – not an obligation
- His wife’s heart is in service (helping others) and he wants her to have that option in her retirement years
- He felt comfortable knowing he could retire whenever he wanted but, financially, he was restricted
- Did an Internet search and found the Old Dawg’s podcast. Became a faithful listener.
- Has learned a lot from the show and is applying that knowledge to his real estate activities today
His Lightbulb Moment
- December 2016, looking at various ways to boost retirement income:
- Subway Sandwich shop franchise
- Healthcare products
- Found real estate to be the best option. Believes the Old Dawg moto that “Cash Flow is King!”
- Was at the Amazon bookstore in Seattle (one of the few Amazon ”brick and mortar” bookstores because Amazon is headquartered there)
- Saw a Bigger Pockets book on buying real estate (The Book on Rental Property Investing)
- He knew people with rental properties and wanted to know more
- Read the book in a day or two
- Immediately saw the advantages:
- Someone else pays your mortgage
- You get tax advantages
- Appreciation
- You control your investment!
Making it All Work and Becoming a Realtor
- Key challenge – didn’t have a lot of excess cash on hand to invest
- His major strength: He’s an avid learner. He devours books, articles, podcasts – everything on real estate investing
- He was ready to buy his first property
- Contacted many real estate agents to seek out properties but they didn’t seem to understand his goals to seek out “cash flowing” properties
- He decided to get his real estate license, become a real estate agent:
- Buy and sell his own deals
- Do his own transactions
- Have access to the MLS
- Passed his real estate exam on his first try April 2017!
- He is a very detail-oriented person (likes to look at the details, examine contracts, etc.) so the agent side of the business appeals to him
What Type of Property to Buy
- David wasn’t interested in single family homes
- Immediately gravitated to the duplex, triplex and fourplexes because they were easier to find and finance through a conventional mortgage loan but he felt that medium-sized multifamily had more advantages
- Told his wife, “I’m going to buy an apartment building.”
- Saw tons of equity in his house and decided to use it. Did a re-fi and took out $380,000 and put it in the bank
- Between April and August of 2017, evaluated around 400 properties
- Didn’t look in Seattle. Looked south, along Interstate 5
The Holy Grail – Finding the Perfect Property!
- Found a 24-unit on the MLS
- Elderly sellers, selling a bunch of properties
- The property had been on the market 2-3 months
- Listed at $1,325,000
- 100% occupied
- Unit Mix:
- 8 studio units renting at $425-475 – Increased it to $525
- 16 – 1 Bed – $475-525 – Increased it to $625
- Package deal
- 3 tax parcels
- A 24-unit apartment
- 15-unit storage units
- Single family residence
- A parking lot
- 3 tax parcels
- Older brick building (from the 1920s)
- Nice neighborhood
- Carefully studied the financials
- Evaluated the market
- Found a good property inspector
- David personally went through every unit with inspector
- Took notes on what needed to be done/upgraded in each unit so as people moved out, they knew what work to do
- Most units did not require much
- Mainly just water and energy conservation moves
- Low flow showerheads, faucets, toilets, etc.
- All units have refrigerators and gas ranges – electric baseboard heat
- Tenants pay electric
- Mainly just water and energy conservation moves
- Located in Centralia, Washington – centrally located between Portland, OR and Seattle, WA
-
- 5-2 hour drive south from Seattle
-
- Offered owners $1,100,000 and they countered with $1,140,000
- Sellers to paid 1% of the closing costs
- He also got his real estate commission ($40,000), which he invested back in the apartment to upgrade
- New carpets
- Lighting
- Laundry room
- Closed on the property in October 2017
- Found a good property manager
Financing the First Deal
- A bit challenging
- Heard several “nos” before he got to yes
- Four strengths he could tout to lenders:
- W2 income
- Managed a 16-unit apartment building in college
- Real estate license
- Would use a professional management company
- Avoided national banks
- Found a regional commercial bank that said “yes”
- Pointed out to the bank that:
- Debt coverage ratio is outstanding
- Can negotiate price down
- Can increase rents
- Building is solid
- He liked having this bank “on his team” because they could also give an objective opinion of the viability of the investment
- Bank thought building was valued at $1,200,000 and was thrilled he got it for less
- Pointed out to the bank that:
- Future Deals
- Will keep investing in Washington and not seek out-of-state deals
Biggest Mistakes
- Insurance – Owner referred his previous insurance agent
- David contacted the insurance agent and she said she would get back to him
- Had 45 days to close so figured he had plenty of time
- A week before closing, the bank asks for his “insurance binder”
- He called agent and his calls and emails were not being returned
- Spend his last week of closing telling his bank and escrow, “I’m working on the insurance binder.” as he hustled last minute to find other insurance alternatives, which can be a challenge for a 1920s building (modern electrical but still some ‘knob and tub’ presence). It requires more underwriting
- Had to ask for a 2-day escrow extension
- Roof Inspection
- Had newer roof (2016) so didn’t think to have specific inspection
- There were drainage issues (his inspector does do roofs)
- Difficult to find a proper roofing contractor/inspector
- Needed more time for inspection
Biggest Success
- Able to negotiate the price down $185,000
- To find this property at just the right time
- To see that it would make money at full asking price and yet be able to negotiate the price down
- Plus all the value-add features that are boosting up the value of the property
- To be able to create a great place for people to live
Advice for Old Dawg’s Considering Real Estate Investing to Help in Their Retirement Years
- Take massive action
- Be willing to refinance your house
- Be willing to study everything you can about real estate
- Be willing to get your real estate license
- He works full-time at his W2 job during the day and searches properties late at night while everyone is asleep
- Listen to podcasts
- You have to take all the information and turn it into action
- Steps to Getting Started:
- Start evaluating properties
- Start contacting brokers
- Join/attend real estate meet-ups
- Maybe find friends at work who may want to join with you or invest in your projects
- Keep a log (journal) that can become your strategic plan
- Write down what you’ve done
- What your goal is for tomorrow, next week, next month, a year from now
- Ninja selling
- Write down 30 times a day where you want to be in the future
- Do more than you did yesterday – more tomorrow than you did today
- Know the steps you need to take to reach your goal and KEEP MOVING FORWARD!
- Be willing to pull the trigger!
What’s Ahead for His Real Estate Business?
- Next goal: 100 or more units
- Needs to learn syndication
- Will consider JV partners
- Needs to meet like-minded investors
Rap-It-Up
- Favorite real estate book: Crushing it in Apartments and Commercial Buildings by Brian H. Murray (a guest on the Old Dawg’s REI Network Podcast)
- Favorite business book: 80/20 Principle by Richard Koch
- Most valuable web site for success (other than your own): BiggerPockets.com
- Favorite app: Jot Note
- Favorite quote: “Success is not the key to happiness. Happiness is the key to success. If you love what you are doing, you will be successful.” – Albert Schweitzer
- If you had to start all over, knowing what you know, and you only had $1,000, what would you do to launch your real estate investing business? Join real estate meet-ups, establish a website, get business cards, create a web presence, pay for real estate exam and license.
How to Reach David
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