How did we do our own monopoly project? How did we start investing in real estate and build our current holdings (two apartment complexes, two medical building and two SFH’s)? In this series we will trace the history of our real estate acquisitions. Previously we described how we got started by buying our first SFH in 1999. What was our motivation?

In the first post of our “Start Your Own Monopoly Project – Step 1: Get In Shape”, we referenced Dave Ramsey’s “Baby Steps” to financial fitness. Step 5 according to Dave it to “Save for your children’s college fund.” In Part 2, we explained our motivation and documented our initial baby step of buying our first rental house in 1999. By February of 2001 we had bought two more SFHs, and three triplexes: “Our Story – Part 3: We Start Buying Triplexes”. By the end of 2002, “Our Story – Part 4: More ‘Plexes”, we were up to 8 investment properties. 2003 was to be a pivotal year for us. In June of 2003, Jim left his W2 job to start our own engineering company; SEAIT LLC. We also bought three more properties; two fourplexes and a 2,500 sq ft office building for the new company. That totals to 11 investment properties in less than five years.

Then we traded the 7 properties totaling 24 units (4 triplexes and 3 fourplexes) via 1031 exchange for a 76 unit apartment building.

That was at the beginning of 2005. From a property standpoint, we did not make any changes until 2008. By that time the ‘subprime mortgage crisis’ was starting to be felt. We used the opportunity to do a cash-out refinance of our apartment complex and buy an additional, smaller complex. We refinanced Broadway for $3.8M at 5.94% pulling out $880K. With the proceeds we bought a 38-unit apartment complex in Tempe right across from ASU. The loan for ‘Tempe Palms’ was or $1,127,500 at 6.51% with a 65% LTV. This is what our investment portfolio looked like in 2008:

To summarize, we put $1.5M down on about $6.4M worth of property; about a 24% LTV. But that is not the true story.

This is somewhat misleading as we really didn’t use savings for the down payments on ‘Broadway Park’ and ‘Tempe Palms’; $800K and $607K respectively. The Broadway down was based on the 1031 exchange from the sum of the seven ‘plexes. The Tempe down was cash out proceeds from the Broadway refinance. Using those numbers instead:

So, actually, we put $322K down on about $6.4M worth of property; about a 5% LTV. This shows the power of TheMonopolyProject. The actual LTV is the 24% above. That is highly leveraged. This will come back to bite us as the subprime mortgage crisis unfolds. Was this a wise move, in retrospect?