Property Ladder

“The rent is too damn high,” is not just the campaign slogan of former
New York gubernatorial candidate Jimmy McMillan, it’s a reality for many big-city residents. Jumoke Dada learned this in late 2002 when she told a friend about her $900 monthly rent for a one-bedroom apartment in South Philadelphia.
“He said, ‘Girl, you could own a home for that much,’” recalls Dada, now 33, who worked as an application developer for Towers Perrin (now Towers Watson), a professional services firm.

Armed with the 5% to 10% required down payment and excellent credit, Dada contacted a  real estate agent and set out to find a condo. But her plans changed when she learned from her agent that a building with two two-bedroom apartments was about to hit the market. The owner had planned to list the property at $200,000 but accepted Dada’s offer of $150,000. It was appraised at $250,000. Dada doesn’t know why the seller accepted such a low offer but believes he may have been unaware of the property’s value or just had a bottom-line dollar amount for which he would sell it.

“When I went to look at it, I was like, ‘Oh, OK, I can have two apartments–somebody will live upstairs and pay the entire mortgage,’” Dada says. She closed in the summer of 2003 and, at 25, found herself the proud owner of a duplex. “My parents couldn’t believe it. My mom thought buying real estate was something only married couples did, but I did it as a single woman.”

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Dada soon found a tenant whose rent would pay more than 80% of her $1,100 monthly mortgage payment. Now, the duplex’s rental income covers the entire mortgage, which is less than $1,100 since Dada no longer pays mortgage insurance.

Her purchase also made sense to her friends, who turned to her for guidance about the real estate market. Dada invited 30 colleagues to her home, where she shared information and gave out her agent’s business card. That’s when a light bulb went on: She should get a real estate license. She signed up for evening classes (at her alma mater, Temple University), got her license in the summer of 2005, and started selling part time that winter.

Dada had created a pretty comfortable life for herself, but after living with a tenant for two years she was ready to move on to something new. She wanted to live in the trendy neighborhood near Temple called the Art Museum area. But the neighborhood, also known as Fairmount, was pricey: One-bedroom condos started at about $300,000. Undeterred, Dada did some research and found a six-bedroom, three-bathroom Victorian that had been on the market for more than a year.

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Once again, Dada got an amazing deal. She paid $220,000 for the home, $179,000 less than the asking price and less than half its appraised value. “I applied for a home equity line of credit against my duplex and used half the funds [$20,000] as the down payment,” she says.  She rented out her duplex apartment and moved into her new home in 2006.  Dada later decided to convert the single-family home into a triplex of three two-bedroom apartments.

To convert the more

than 100-year-old Victorian, Dada applied for a home renovation loan. The six-month renovation, which started in April 2008, stretched to just over a year and went $3,500 over budget, but Dada was able to rent the units quickly once the work was complete. The mortgage on the triplex is less than $2,500, with monthly upkeep less than $100. Dada is already renting two of the units (for $1,125 and $1,175) and will rent the third, which she currently lives in, for $1,000 this month. She plans to move out of state to explore other opportunities.

Although risk is involved and property values can fall, Dada has done well as an investor. Her properties have allowed her to quit her full-time job and invest some money into Signature Red, the women-targeted marketing firm she opened in 2009.

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How she did it.
“Think location.” Focus on high rental areas such as those near schools or public transportation. “In my experience, if a property is located near a desired school, finding suitable buyers is easier,” Dada says. She’s even found that areas near average schools still rent very well.

Inquire about down payment assistance options. Even with lenders tightening their purse strings, there are still programs that offer down payment assistance to those who want to be homeowners. “If you want to buy a home but don’t think you can save money,” Dada says, “go to your local community development organization and ask about special programs.”

Select tenants wisely. When choosing a renter, be sure to: 1. Do a credit check. Look for delinquencies on the credit report, payment patterns, good referrals from previous landlords, and a solid work history. 2. Check references. Ask for a minimum of four and request that the sources vary–they could represent, for example, a friend, relative, colleague, and previous landlord (if applicable). Ask about the applicant’s character, habits, and cleanliness. 3. Trust your instincts. People present their “best” when they want something so you have to probe. Despite what appears on paper, if you have any doubts … pass. For more tips, read “Who Wants to Be a Landlord?” on BlackEnterprise.com.