Optimum real estate model?
I am in the process of building out "the optimum real estate model". The primary goal is to work modestly for next 20 years and have an increasing income to travel the world and enjoy watching my kids build their own lives.
First of all, I am interested in building a semi-passive income from real estate. After a couple years of flipping 30+ higher-end houses, the work began feeling like a stressful job to me. I became worried about being fully exposed in the market and became concerned about giving up all profits if the market quickly shifted. So I decide to work on a well thought out long term plan. Options that I envisioned in my plan included:
1) Fix and Flip
2) Be a wholesaler
3) Become an Agent
4) Multifamily investing
5) Syndication
6) Single family rental
I focused on a "Warren Buffet" approach and decided to buy "out of favor" single family houses, fix them for value creation, and rent them out to working class tenants. My intent is to keep them long term. Part of my observations included seeing my Dad's experience. He purchased a 2 flat apartment 50 years ago for $13,000. The property was 50 years old when he bought it. Today he is still netting $600 a month after 5 decades!
My Goals for Real Estate retirement fund include:
-long term income for life
-Enough scale so I don't have to manage the properties myself
-Find people to work with that I enjoy and respect.
-Keep it simple. (purity of intent)
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I broke my plan out into 3 stages.
Stage 1) set up a fund for myself and investors that have similar expectations. -Ramp up deal flow, -build teams to do the work, learn about the property management , identify locations to buy into
Stage 2) Develop a foundation of 100 properties so that economies of scale kick in. Lower my cost of capital so I have a competitive advantage. -begin flipping a few houses with 25%+ margins. use capital from banks at 5%.
Stage 3) maintain 100+ properties and replace some of the SFR with multi-unit apartments using all debt. Ultimate goal 100 SFR and 200 apartments. balance sheet goal 35% equity and 70% debt and a 12%+ long term cash low for partners paid out monthly.
There have been some pain points along the way. I'm about 2 1/2 years into the plan.