After watching hours of real estate-related videos on YouTube, Mike Newton was convinced that investing in property could help him build long-term wealth.
There was one problem, though: He didn’t have any cash on hand.
At the time, “I had about $1,000 in my bank account,” Newton told Insider.
That was in early 2018. He buckled down and, thanks to a few strategic decisions, managed to buy his first property later that same year.
Today, at 31, Newton owns 10 units across eight properties in Seattle, Washington, where he resides, as well as in Gary, Indiana and Chicago, Illinois. Insider verified these details by looking at closing documents.
He’s still building his portfolio and plans to continue acquiring property until he can live off of his rental income. He’s on track to do so by 35, he said. At that point, he plans to retire from his day job as a Washington State Trooper and move to Florida with his son.
Detailed below are three strategies that Newton used to go from $1,000 in savings to building a 10-unit portfolio in four years.
Newton needed more than the $1,000 he had in cash to cover a down payment and closing costs, so one of his immediate first steps was increasing his income and saving the majority of it.
For about six months, he picked up every overtime shift that he could. “I was working 90 hours a week and saving every penny until I had the money I needed,” he said.
Saving came relatively easy to him because of his background. His mom raised him and his six siblings on her own in Grand Forks, North Dakota and they relied on food stamps and government assisted housing to get by.
“Growing up as poor as I did, I already lived a very frugal life. So when I made this conscious decision to start actively saving to invest in real estate, I couldn’t really tighten the belt anymore,” he said. “I shop at Walmart. I don’t own lavish things. I drive a 32-year-old car that I bought 12 years ago. So there wasn’t much of a lifestyle to cut back.”
The things he enjoys doing — playing soccer, going to the gym, and spending time with his son — don’t cost a lot of money, he said.
The combination of increasing his income and living frugally allowed him to save $30,000 in about six months, enough to cover the upfront costs for his first home.
He’s not the only real estate investor who had to focus on boosting income before buying property. Dion McNeeley, who also resides and invests in Washington state, lived paycheck-to-paycheck for years before he could afford to invest in real estate. Thanks to working overtime and various side hustles, he saved up $20,000 over two years to buy his first investment property.
Read up on how to start a side hustle and start earning more today. After all, the more money you bring in, the more you’ll have to save.
Newton believes that house hacking is “one of the safest ways that you can start investing in real estate,” he said.
This is a strategy in which you purchase a multi-family property like a duplex or triplex, live in one unit, and rent out the other unit(s) to offset your mortgage payment. You can also house hack a single-family home, which other real estate investors have done, if you’re comfortable having roommates.
Newton’s first property was a $450,000 duplex outside of Seattle. He closed in November 2018 and moved into one of the units. The other half of the duplex was already filled with a tenant, so he immediately started earning $1,600 a month in rental income, he said. Plus, a childhood friend moved into one of the three bedrooms in Newton’s half of the duplex and paid $500 a month in rent.
The $2,100 in rent from his two tenants covered the majority of his $2,750 monthly mortgage payment. He still lives in the duplex today and, since rental prices have increased over the past four years, his monthly housing payment is closer to $300 now. That allows him to set aside most of his salary, he said, and save up for future investments.
There’s another financial benefit of living in the property you buy: It allows you to take advantage of owner-occupied financing and get in with a smaller down payment than if you were buying a true investment property. That’s because lenders see investment property loans as riskier than primary home loans.
“Most traditional lenders are going to require 20% down for an investment property, unless you are doing owner-occupied financing,” explained Newton. “Then, you can potentially get in with as low as 3.5% — and sometimes even 0% with a VA loan.”
As an owner-occupant, Newton was able to buy his duplex with a 5% down payment, meaning he needed $22,500 upfront. That was much more attainable for him than saving 20% (which, on a $450,000 home, is $90,000).
Immediately after buying his first property, Newton was thinking about the next. But he’d used up most of his cash. Plus, his next purchase would be an investment property, which would require a 20% down payment.
“I realized that if I wanted to buy anything else, I’d have to save up 20% — and a 20% down payment on $500,000 properties is nothing to sneeze at,” said Newton. “That’s a lot of overtime work and a lot of time spent saving.”
One of his real estate mentors, an investor named Mark who he connected with in the comments section on a YouTube video, recommended he look in Gary, Indiana. That’s where Mark owns a lot of properties, despite living in Virginia.
After researching the market and picking Mark’s brain, Newton decided to follow his lead and buy in Gary.
Mark referred him to a turnkey provider in the area. This is someone who fixes and flips homes, Newton explained, “but instead of flipping it to a homeowner, they flip it to an investor. They find a distressed property, remodel it, and rather than sell it, they put a tenant in it at fair market value and then sell it to an investor.”
In 2020, Newton bought his first turnkey property in Gary for $60,000. It came with a tenant who was paying $800 in rent, he said, meaning he’s been earning rental income since day one. Today, the property cash flows about $260 a month, he added.
The obvious benefit of investing in Gary was the affordability.
“It’s a cheaper market that I actually could afford to invest in,” said Newton, who’s lived outside of Seattle for the past 14 years. “But with that comes different issues and unique problems. Gary, for example, has been dubbed America’s most miserable city. Its poverty and crime rate is triple the national average. One-third of all houses in Gary are abandoned.”
Like many major industrial cities throughout the Midwest, Gary fell victim to deindustrialization and not having a diversified economy. Newton is betting on the flight-to-quality phenomenon in real estate and believes that by providing nice housing in an area where there is a need for investment, he’ll attract and retain tenants.
Newton now owns six properties in Gary: five single-family homes and one duplex. He also owns a single-family home in Chicago, Illinois.
If you’re considering investing out-of-state, “the most important thing to do is build a team and a network,” he said. Start by connecting with other investors in the area you’re looking in, like he did with Mark, and ask them about the area and their experience investing there. When the time comes to find a property manager, contractor, handyman, and other key players, lean on the established investors you’ve already connected with.
“The next most important person on your team is going to be your property manager,” said Newton. “They’re going to make or break your out-of-state investing experience. Ultimately, they’re going to help you mitigate the amount of headaches that you have.”
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