Mapping out my REI strategy

Now that I’ve established my 10 year goal, the next step is figuring out my strategy:

Investment Type

Starting with what I don’t want (or can’t do) – definitely no wholesaling, flips or rehabs. So that leaves 1) buy and holds and 2) note investing. I decided to just do mortgage notes in my Solo 401k for now. My primary goal is maximizing cash flow so I won’t restrict myself with regards to the age of the house. In 5-10 years, depending on market conditions I’d like to switch out older homes for properties that are less than 10 years old. Or maybe by then, I’ll be sick of being a landlord & just go with mortgage notes J!

Property type:Unsure whether to stick to SFR's and/or multi-families. The Pros and Cons I’ve read are:

SFR’s

Pros


-Flexibility i.e. easiest to sell

-Better quality tenants.

-Greater appreciation potential

Cons

-Maintenance costs higher for 4 SFR’s than one 4-plex.

-Less cash flow than multi

Multi’s

Pros


-Lower maintenance due to more units under one roof.

-Maximizing cash flow.

-Expandability (thanks to Ben Lebyovich for teaching this concept)

-One vacancy results in loss of only a fraction of total rental income.

Cons

-Multi unit value tied to cash flow.

-Less stable tenant pool.

-Not as easy to sell.

I think I can go with either one so I’m going to leave it up to whichever opportunity comes up in my desired area and within my desired numbers.

Numbers: I’d like to stick to B neighborhoods that provide a balanced mix of cash flow and appreciation potential. I’d like to see cash on cash return of 15% but will be flexible on that point if the appreciation potential is higher.

Location: I strongly believe in diversification so I plan to invest in 3 or 4 different places where properties cash flow well. Initially, I was considering Milwaukee for good cash flow combined with low entry prices but then I concluded that I wanted a balance between cash flow and appreciation potential.

So far I’m considering these cities:

1)Atlanta GA – diverse economy a big plus. I think Atlanta is poised to really take off & price points for entry are favorable.

2)Texas – booming economy. Have to decide between DFW and San Antonio (eliminated Austin due to price run-up & Houston due to dependence on energy sector & location on the gulf)

3)Fort Wayne IN – mid-size town offers less volatility in home prices and balance.

Financing: I love the idea of owning properties free & clear, yet leverage provides unparalleled possibilities to accelerate growth. So rather than tying up all my funds in 1 or 2 lower priced properties, I’m going to try and finance as much as possible and prudent (Is that an oxymoron? I think not) to take advantage of the current low interest rates. Which means I’m going to need either: 1) a job with W-2 earnings to qualify for a traditional mortgage or 2) find a partner with a W-2 job. To that end, I’ve broached the subject of REI with several friends letting them know of the tremendous possibilities that are out there. I’m also drafting an presentation of my strategy & different partnership options to sell to my short list of friends who I think may be strong possibilities for partnerships. Of course being a newbie myself with no track record to showcase it may be a hard sell; but maybe not – I already had one friend offer to invest with me but unfortunately he is self-employed with erratic income so he’s missing what I need most – the W-2 job.

Next step: Refining the partnership proposals and build the partnership.