How Real Estate Investor With $36,000 Salary Scaled to 2,500 Rentals

It was at that moment that Whitmore decided that he too wanted to be ‘that guy.’ He wasn’t sure exactly how, but he imagined it meant being a business owner of some sort.

Today, he’s the co-founder and managing member of Precision Equity, a real estate investment and management company he started with his business partner, Joel Thompson. They specialize in apartment complexes and retail centers.

Even though Whitmore had set his sights on millions at a young age, his path to success wasn’t a straight one.

In 2002, he graduated from the University of Phoenix with a bachelor’s in business information systems. And by 2003, at the age of 27, he was a systems analyst for a communications company making about $36,000 a year, according to his tax filing viewed by Insider. He enjoyed the job but knew he could never reach generational wealth on that paycheck.

Over the years, he took a light interest in real estate after reading Robert Kiyosaki’s “Rich Dad Poor Dad.” Then, a passing conversation with a friend who had just flipped a property and made a profit further piqued his interest.

In May 2003, he came across a newspaper ad for two local single-family houses in Tulsa, Oklahoma. They were run down and barely livable but were listed below $20,000.

Whitmore and Thompson, who were just friends at the time, mustered up enough money to make an all-cash offer on both properties, buying them one day apart, for a discounted price of $17,000 each, according to closing documents viewed by Insider. Whitmore had saved up two tax refunds and some money from buying and selling used watches. An additional $8,000 loan from his parents. And, they both applied for multiple credit cards to access cash advances. Whitmore estimates using about $10,000 from the cards, which they repaid once they refinanced the homes. It’s a move he doesn’t recommend due to high interest rates.

Once they got the properties, they did some light rehabbing including painting and carpeting. Instead of commissioning an expensive contractor, they hired a local handyman to make small repairs. They spent about $4,000 and did just enough to make it habitable.

One month later, they posted a “for rent” ad in the local newspaper and found a tenant quickly. It helped that they accepted tenants with a Section 8 voucher, which is a government-assisted program that covers rental payments on behalf of low-income households. While many landlords tend to avoid this process, Whitmore says it soon became a stable source of rental income when they were building their portfolio in the early days.

The snowball effect 

Those first two properties started a snowball effect that would grow over the years. They suddenly had two cash-flowing assets they could take to the bank and leverage. Specifically, they used them for cash-out refinancing. The houses were appraised at $45,000, he said, and the bank would loan them 80% of that value as part of a conventional cash-out refinance. In a short period, they had doubled their investment. In Whitmore’s mind, he had hit a gold mine.

Public property records viewed by Insider show both properties sold for $57,000 in 2005.

In September 2003, Whitmore said they had the cash to purchase another bundle of three single-family homes from the same seller for $24,000 each in Tulsa. After another light rehab and an open door for Section 8 vouchers, they now had five cash-flowing assets. By December 2003, they also refinanced these properties at appraisals of over $50,000 each, he said.

Investors weren’t lining up to snatch up property in North Tulsa. It was a neglected area with run-down houses, he said. The upside was that there were a lot of gems that were in an affordable range.

“Obviously it comes with a lot of headaches and a lot of work that the more experienced investor isn’t really interested in,” Whitmore said. “But for us at the time, just starting, we didn’t know any different and it ended up working out fantastic.”

A big chunk of the work was really in the due diligence that went into finding the properties and taking them to closing, he noted. Many of these houses weren’t listed on the MLS. So they drove up and down neighborhoods hunting the “for sale” signs a few days a week.

“If you’ve ever heard of the 100/10/three/one rule, we probably got pretty close to that. When you look at a hundred, you make offers on ten, three get accepted and you end up closing on one,” Whitmore said.

In January 2004, they were ready to make a big leap into buying a $1.4 million apartment complex. In total, he recalls having about $120,000 in cash from refinancing their single-family homes. They were able to receive seller-carried financing for 14% of the purchase price, and a commercial loan of $1.12 million.

Since 2003, Whitmore has purchased and owned over 2,423 rental units with his business partner. Of those units, 20 were single-family homes and 2,403 were within multi-family complexes, according to property records viewed by Insider. He has since sold most of his properties for profit but still owns three multi-family units that hold 471 rental units. Their real estate firm manages these properties.

These holdings do not include shopping centers owned by Whitmore and his business partner.

It wasn’t all a win, he noted. There were some properties along the way that they lost money on. This happened in the multi-family space, where they didn’t always know what they were looking for and ended up overpaying on properties that needed a lot of work and maintenance.

Whitmore kept his IT job until 2006, when that company went bankrupt. By then, they had already scaled to 20 single-family homes and a few multi-family complexes.

His top starter tips 

Real-estate investing is all about the numbers, he said. People get emotionally attached and look for investment properties as though they want to live in them. Forget about what it looks like and what neighborhood it’s in, he said. Start small, in an affordable range. In today’s market, that could look like a $50,000 single-family house.

The equity you get from your investment is important and you’ll need that to reinvest if your plan is to build generational wealth.

“I always tell people, never eat your seed,” Whitmore said. “You got this tiny little seed. If you’re starving, you might want to eat it, but if you plant it, what do you get? You get a tree that produces a thousand mangoes every single year.”

Finding the right deal and closing on it is a lot of work. Many people don’t have the patience and ambition to push through this process. However, you need to plan on looking at at least 100 properties until you get to a point where you understand what a good deal looks like. This will help you become an expert when it comes to understanding the comps for the market you’re interested in.

The rehabbing process could end up costing you. It’s important to find and build a long-term relationship with a contractor you trust and like working with. References are a great starting point. You can also search the internet for reviews. Once you’ve narrowed down your contenders, always get three bids from different contractors to get an idea of what the right price is for a job. Finally, start them off with a small job and see how they work. One thing he highly advises against is prepaying for a project, even though many will ask for that, he said.

Consider subsidized housing vouchers like Section 8. It can increase your income and lower your turnover rate. Whitmore said he was able to collect higher rents from vouchers than what the average market rate would be for properties in his market.

For example, in Tulsa, a one-bedroom voucher is $859 and a three-bedroom is $1,430, according to the City of Tulsa Housing Authority. In contrast, the market rate for a studio or one-bedroom is $825 and a three-bedroom is $1,315, according to CBRE, a commercial real estate agency.

Additionally, every time a tenant leaves, there are associated costs because you may need to cover expenses and repairs out-of-pocket for the next tenant. The average turnover rate for a class B or C property is about 40% to 50% annually, he said. For tenants on Section 8 vouchers, it’s closer to a 25% turnover rate from his experience.

There’s often a stigma around this program. However, just because it’s subsidized, doesn’t mean you’re going to get a bad tenant. There are single mothers and elderly people who just can’t afford rent, he said.