Requesting Investment Strategy Advice for a Real Estate Newbie

Conrado Balicusto · 2024-08-30T14:14:31-07:00

I come from the Financial Independence Retire Early (FIRE) community and have already reached my financial goals. While I continue to work because I love what I do, I plan to stay in the workforce for the next 10 years. Now, I'm looking to venture into real estate investment for several reasons: Diversify my investment portfolioBuild generational wealthLower my taxable income My Investment Criteria: Buy and Hold Strategy: I'm focused on long-term investments.Cash Flow: Not a priority for me; I don’t need the income from these properties, even in retirement.Acquisition Pace: I plan to acquire one or two properties per year. I will be injecting new funds every year.Full Control: I enjoy analyzing deals and prefer to have full control over my investments, so syndication is not an option. Given that I'm a complete newbie in real estate, I would greatly appreciate your advice on the following: Selection Criteria: What factors should I prioritize when choosing properties?Strategy Recommendations: What additional strategies should I consider to maximize long-term returns and tax benefits?Pitfalls to Avoid: What are the common mistakes new investors make that I should be aware of? Thank you in advance for your insights!

Randall AlanPro Member

Investor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes

2y

@Conrado Balicusto

My thoughts for you…

Long term holds are much less labor intensive than short term rentals.

Cheaper C class rentals will let your investment funds to go further than buying A class properties. You will make more money dollar for dollar (ie. buying 4 - $100k properties will net you more than one $400,000 property.). Tenant selection is critical though. Know that children are rough on properties versus older adults with no kids.

Likewise, leverage (financing) will also let your money go further and let you make more money dollar per invested dollar. This also works out well for appreciation.

Accepting ‘zero cash flow properties' is really just a compromise on your part that I would suggest you not make. You want both… cash flow and appreciation. Without cash flow you will end up going out of pocket for any repairs and Capex expenses.

You achieve full control and maximum profit by investing locally and self managing your properties. As soon as you bring on property management your cash flow on a financed property will drop by 1/3 (give or take). We self-managed 20 properties while working 2 full time corporate jobs pretty easily. Most solutions to property problems can be solved with a 3 minute phone call (plumbing / AC issues, etc). Property managers still have to be managed, so they don’t alleviate your interaction with your properties. Property managers also don’t have any incentive to save you money managing your properties. I was quoted $800 by a property manager years ago to replace a $150 garage door opener. We fired the PM the next day and started self managing our properties and haven’t regretted it.

Hope it helps!

Randy

1 Reply

Conrado Balicusto

OP

Rental Property Investor · Member since 2023 · 13 posts · 5 votes

2y

Quote from @Randall Alan:

@Conrado Balicusto

My thoughts for you…

Long term holds are much less labor intensive than short term rentals.

Cheaper C class rentals will let your investment funds to go further than buying A class properties. You will make more money dollar for dollar (ie. buying 4 - $100k properties will net you more than one $400,000 property.). Tenant selection is critical though. Know that children are rough on properties versus older adults with no kids.

Likewise, leverage (financing) will also let your money go further and let you make more money dollar per invested dollar. This also works out well for appreciation.

Accepting ‘zero cash flow properties' is really just a compromise on your part that I would suggest you not make. You want both… cash flow and appreciation. Without cash flow you will end up going out of pocket for any repairs and Capex expenses.

You achieve full control and maximum profit by investing locally and self managing your properties. As soon as you bring on property management your cash flow on a financed property will drop by 1/3 (give or take). We self-managed 20 properties while working 2 full time corporate jobs pretty easily. Most solutions to property problems can be solved with a 3 minute phone call (plumbing / AC issues, etc). Property managers still have to be managed, so they don’t alleviate your interaction with your properties. Property managers also don’t have any incentive to save you money managing your properties. I was quoted $800 by a property manager years ago to replace a $150 garage door opener. We fired the PM the next day and started self managing our properties and haven’t regretted it.

Hope it helps!

Randy

Thank you for your thoughtful response. I appreciate your insights on balancing cash flow and appreciation, tenant selection, and the advantages of investing in different property classes. Your advice on the importance of self-managing properties to maximize control and profit, even while working full-time, is particularly valuable.

Additionally, could you share your experience with self-managing properties while working full-time? Any tips on making that process more efficient would be incredibly helpful. Thanks again!

0 Reply

Randall AlanPro Member

Investor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes

2y

@Conrado Balicusto

We utilize RentecDirect.com as a tenant facing portal to collect our rent, deposit it to our bank account, market our properties, screen our tenants, handle our accounting and more. The platform also lets our tenants report maintenance issues, and see their rental account payment history at any time. So using a CRM program like that really helps automate processes. It costs about $3-5 per month per door… one of our favorite landlord tools by far. Finding systems that optimize your time and efficiency with your rentals makes a big difference.

We tell our tenants that texting us is the fastest way to reach us. We manage 37 units currently and we seldom if ever get late night phone calls … or phone calls in general at all. Everyone texts, so there really isn’t a lot of things that interrupt a work day that couldn’t be handled taking a 5 minute break or during a lunch break.

Having 1-2 go-to vendors for the highest frequency problems… plumbing, A/C, septic, electrical, and roofing, I can pretty much make a 2-3 minute phone call and pass the problem to someone who will solve it with little more input required from me. That is a big key to efficiency… and the more units / calls you have, the more these vendors take care of you because they know how much business you give them. I literally get a Christmas card from my Plumber - which tells me we are one of their bigger customers.

Randy

1 Reply

Samuel DioufBusiness Member

Real Estate Agent · Columbus & Cleveland, OH · Member since 2023 · 1k+ posts · 1k+ votes

2y

Given your goals, I would prioritize investing in markets that are showing signs of appreciation. Appreciation is what builds wealth.

[email protected]614-662-1652

Reafco - Samuel Diouf528 Reviews

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1 Reply

Drew SygitBusiness Member

Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes

2y

@Conrado Balicusto

Recommend you first figure out the property Class you want to invest in, then figure out the corresponding location to invest in.

If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

So, when investing, investors should research the different property Class submarkets.

Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+ (roughly 5% probability of default), zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation. ABout 1-3 years for positive cashflow.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680 (around 10% probability of default), some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620 (approaching 22% probability of default), many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560 (almost 30% probability of default), little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

PM us if you’d like to discuss this logical approach in greater detail!

[email protected]248-209-6824

Logical Property Management4.9459 Reviews

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0 Reply

Conrado Balicusto

OP

Rental Property Investor · Member since 2023 · 13 posts · 5 votes

2y

Quote from @Randall Alan:

@Conrado Balicusto

We utilize RentecDirect.com as a tenant facing portal to collect our rent, deposit it to our bank account, market our properties, screen our tenants, handle our accounting and more. The platform also lets our tenants report maintenance issues, and see their rental account payment history at any time. So using a CRM program like that really helps automate processes. It costs about $3-5 per month per door… one of our favorite landlord tools by far. Finding systems that optimize your time and efficiency with your rentals makes a big difference.

We tell our tenants that texting us is the fastest way to reach us. We manage 37 units currently and we seldom if ever get late night phone calls … or phone calls in general at all. Everyone texts, so there really isn’t a lot of things that interrupt a work day that couldn’t be handled taking a 5 minute break or during a lunch break.

Having 1-2 go-to vendors for the highest frequency problems… plumbing, A/C, septic, electrical, and roofing, I can pretty much make a 2-3 minute phone call and pass the problem to someone who will solve it with little more input required from me. That is a big key to efficiency… and the more units / calls you have, the more these vendors take care of you because they know how much business you give them. I literally get a Christmas card from my Plumber - which tells me we are one of their bigger customers.

Randy

Thank you for sharing such valuable information—utilizing RentecDirect.com for streamlined tenant management and having go-to vendors for efficiency sounds like a game-changer.

0 Reply

Conrado Balicusto

OP

Rental Property Investor · Member since 2023 · 13 posts · 5 votes

2y

Quote from @Drew Sygit: