Investors: It’s OK to Get “Rich” A Little Bit Slower

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Today’s post is simply meant to be food for thought for those who (like me) enjoy real estate investing, but aren’t passionate enough about it to spend all your working hours focused on growing or maintaining a large real estate business because your zeal and purpose lie in other things.  You respect real estate as a wealth building strategy, you’re willing to learn enough to keep yourself out of trouble (smart move), and you’re willing to hustle for a few years to get a great head start particularly during these years of decline when prices are more affordable than they’ve been in a long time.

My hubby & I have subscribed to what I call the “get rich slower with maximum cash flow and minimal grief” plan for real estate investing.  It’s not super slow, but it’s definitely not “get rich quick” either! Our focus is to increase our current rental portfolio to a total of 10 single family homes by the end of 2011 and pay the 10 homes off entirely by the time we hit the age of 40.  Our sweet spot for rentals is in neighborhoods with 3 bedroom/2 bathroom homes from $60-$90K with rental rates between $1200-$1,600.

We’re leveraging private funds to acquire our properties and doing flips to generate the cash to pay the properties off within 7 years rather than the traditional 15-30 years. Our positive net cashflow at the time of acquisition ranges from $400-600/month so the cashflow is solid from the start and only gets sweeter.

Once the properties are paid off at the age of 40, we’ll have zero debt and a residual cashflow that provides between $90-110K annually for our family without dealing with a large portfolio of units or investing in apartment buildings.  Now before you begin to argue with me, I’m by no means saying that having a much larger portfolio and investing in apartments isn’t a terrific idea….it’s just not our path.

If you’re just getting started now and you have cash reserves in place, you can focus on acquiring a handful of properties over the next 12-18 months.  What’s great is that you don’t have to buy up every deal you see, and instead you can cherry pick and focus on the few really solid ones that will yield a strong positive net cashflow from day one.   You’ll want to get a few purchased right away because you don’t want to put yourself in a position where one vacancy or one major repair issue eats up an entire year’s worth of income. Been there, done that.

Landlording certainly has its challenges, but it is also rewarding.  One of the things I absolutely love about real estate investing is that you can grow slowly and methodically or quickly (yet strategically) and still be successful.

Take your pick, but I encourage you to begin with your end goal in mind.  There’s nothing wrong with getting “rich” (whatever that means to you financially speaking) just a little bit slower than others in this real estate investing game.

Photo: Rachel Ricci

About Author

Shae Bynes is a real estate investor in Sunny South Florida. On her blog, GoodFaithInvesting.com, she provides helpful tips and an inside look at her real estate investing adventures -- obstacles, failures, & successes!

16 Comments

  1. Shae,

    I love the thought of owning 10 single family homes free and clear by age 40 but where in the world are you finding homes with MVs around $60K that rent for $1200/mth?

  2. Shae – great article – this is exactly the path I’m looking to follow right now as a young soon to be real estate investor/landlord.

    However, I am having a major issue which I haven’t found much info on…the area I live in is extremely expensive, in fact aside from traveling to a very low income/undesirable city/neighborhood it just isn’t possible to find houses(even fixer-uppers) for under $150k

    Is it at all feasible to travel significantly outside of my area (multiple hours away) in order to find homes in the price range you mentioned above? I’m kind of at a complete loss in how to proceed right now.

    Any advice?

    Nick

    • If I lived in a place that didn’t provide the needed cashflow, I would find the next closest city that did. If you really do your research and find some sweet spots you can purchase all your properties in the same area which wouldn’t make the distance so bad.

      Hopefully it would also be a place you wouldn’t mind visiting often for pleasure too since it can be a tax deduction for you to vacation and do business at once 🙂 The other key would be to spend time there face to face with potential property managers.

  3. GREAT article Shae! I love reading your content. I have a small question for you – how do you discover what the average rental rates are for a specific area? I mean if I were to travel to another city close to me (SC) to check on the cashflow opportunities for purchasing a property – what would be the most effective way to find out what the average rents are for the area?

    THANKS and have a great weekend!!!

    • Hi Nate, thanks I appreciate that! There are several ways to check rental rates in an area:
      (1) Check Craigslist or a local Penny Saver or newspaper (some newspapers have online classifieds)
      (2) Check with a local realtor who specializes in rental properties
      (3) Drive the area and call “for rent” signs in the area and talk to the landlords
      (4) Check websites like rentometer.com

  4. This is the back to basics concept. In the commercial real estate market, it is the same process. Start small, don’t bite off more than you can chew. If purchasing property with a tenant in place, review the lease. Find out how long the term is, investigate the tenant. You dont want to get stuck with empty space if they go bad or the lease term was short. Too many investors today are focused on the amount of cash flow vs the price (CAP % rate net/sale price). Sure a high cap rate is great as long as the tenant isnt leaving 6 months after you purchase.
    Take your time, do your homework. Nice article Shae. Keep up the good work.

  5. Shae,

    Great advice. Everyone has heard the saying, you must see the forest through the trees. I think many real estate investors (myself included) need to stop and see the trees through the forest.

    As you stated in your post, understanding the why is the most important thing. Sure you two could easily own 1000 properties down the road, but you understand that doesn’t achieve your goals and what you want to accomplish. You have a leg up on 90% of the other investors out there by simply knowing what you want and why you want it.

    Jason

  6. Shae – as always – great article!! You know we sing the same song with regards to this!!

    I just wanted to comment to Nick who said:
    However, I am having a major issue which I haven’t found much info on…the area I live in is extremely expensive, in fact aside from traveling to a very low income/undesirable city/neighborhood it just isn’t possible to find houses(even fixer-uppers) for under $150k

    Nick – I’m not sure where you live but we’re in Western Canada. We haven’t purchased anything for less than $230,000 this year. The average purchase price of our properties this year (we’re working on our 8th purchase for the year right now) is just over $300,000. It’s not easy to find deals that will cash flow. We probably look at 100+ deals, physically look at 20 – 40 properties and make at least 10 offers to get a good deal done. (And I can tell you … Shae has to work pretty hard to find great deals too!! It’s just that she doesn’t have to raise as much money to get the deal done!)

    We make it work for us by doing a mix of buying houses with 2 units and doing rent to owns on good quality single family homes. Obviously the rent to own deals aren’t wealth creators – just cash flow generators but we find we need a good mix of both in our portfolio to make it work for us. My point is simply to say that you may have to try a different strategy in your area to make it work or try a different property type but I bet if you look around you’ll find some investors in your area that are making money in real estate.

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