BEND, Ore. (CNN/Money) – A few years ago, Richard Domaleski, now 33, looked around his New Jersey rental apartment and decided it was high time he started thinking about planning for the long term.
"I was 30 years old and really didn't have much savings," said Domaleski, who earns a modest income as a software consultant. About the same time he came to that realization, Domaleski learned about Robert Kiyosaki's book "Rich Dad, Poor Dad." Like many people who read the book, he decided that rental property would be his ticket to financial independence.
With very little in savings, though, he would need to start small.
Step one: Land
Domaleski's first move was to find a vacant lot in Florida, where land was more affordable than in New Jersey and the prospects seemed pretty good.
"My whole family had moved to Florida," he said. "Over the years of going down there I saw that the population was growing and new businesses were going in."
In October 2002, he bought a 10,000-square-foot parcel in Cape Coral for $15,000 using $4,500 of his savings for closing costs and a 20 percent down payment.
After realizing how painless it was to make his $110 monthly mortgage payments, Domaleski started looking for another lot. In March 2003 he closed on a $14,000 lot in Cape Coral with a 10 percent down payment and an interest-only loan.
"The payment is $55 a month," Domaleski said. "I pay more for my cell phone."
Domaleski's timing proved ideal. Over the past year, home prices in the Ft. Myers and Cape Coral area have increased 21.5 percent, according to the National Association of Realtors. In March, Richard's first lot was appraised for $58,000. Based on that appreciation, he estimates that his second lot is worth about $45,000.
Step two: Handyman's special
Encouraged by the rising values of his land, Domaleski took his real estate investing to the next level -- finding a fixer upper.
His first foray into this area has not gone smoothly. With the help of his dad, a contractor, he found a small house in Cape Coral and signed a contract to buy it for $50,000 in 2002. But the closing has been delayed nearly two years by the sellers.
Nonetheless, Domaleski said it is expected to take place in June. Meanwhile the value of the property has gone up, having recently been appraised for $77,000. Domaleski says he has already set aside a 5 percent down payment and lined up financing for the balance.
The house needs a lot of work, though it's mostly cosmetic. Better yet, Domaleski's dad has agreed to do most of the work in exchange for a share of the profit.
Step three: Home sweet home
Meanwhile, Domaleski and his fiancée, Melissa, decided it was time to trade in their rental and buy their first house.
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They started house hunting in New Jersey but quickly realized that they'd get more for their money and save on property taxes if they bought over the state line in Pennsylvania. "We didn't want to be house broke," said Domaleski, explaining that he and Melissa set a limit for what they wanted to spend and stuck with it.
In late April, the couple closed on a three-bedroom house in Forks Township for which they paid $266,000.
To help pay for the down payment and closing costs, Domaleski borrowed $23,000 against the equity in his first lot, which increased the monthly payment on the land by about $100. The couple then financed 80 percent of the home's price with a 30-year fixed-rate mortgage and another 15 percent with home equity "piggy back" loan. They split their $1,980 mortgage payment and other housing expenses.
Even with the higher monthly living expenses, Domaleski's total debt load is still within the guidelines given by most lenders. (See "Reality check.")
Meanwhile, he continues to invest 9 percent of his income in his company's 401(k) plan and has set aside $9,000 in cash, or enough to cover at least three months of expenses.
What's next?
If all goes according to plan, Domaleski and his dad will be able to put their Florida fixer-upper on the market by the end of this year. "We're just going to fix it and flip it," said Domaleski, who believes he can get as much as $120,000 for the house, or more than twice what he paid.
Assuming he makes out as well as he thinks he will, Domaleski hopes to use the proceeds to finally buy his first rental property.
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