One of my goals for 2008 is to purchase my first investment property. I view real estate investment (REI) as one way to help me break free from my traditional methods of saving (401K, IRA’s etc.) and establish a retirement worth having. The more I dwell on my life’s purpose and what I want and don’t want in my life, the more I realize that I want my retirement sooner rather than later so that I can take time to actually enjoy life.
I’ve also come to the conclusion that the best ways for me to achieve an early retirement is to pursue individual business ownership and start a REI portfolio. This blog is a small step on the business front (I’ll be making some changes here soon to further that effort) and recently I started to execute my REI plan.
Initially, I had intended to invest in my backyard here Virginia Beach, Virginia. However, after several months of searching the MLS and foreclosures, I’ve come to the conclusion that Eastern Virginia is too expensive an area for me to start out investing in. After some brainstorming on how I could become a real estate investor in an affordable market I settled upon the Kansas City area. There are many reasons why KC has great real estate potential, several are outlined here. Bottom line, KC is affordable, familiar (I grew up in the suburbs of KC), an easy market to enter, has solid potential, and is a place I might reside someday (post-military, of course). So for now I’m going to try and hang my real estate investment hat there.
In June my family and I spent two weeks in KC on vacation to spend time with family and friends (my wife grew up in KC too). Being an opportunist, I spent some time with my Realtor, Chris Lengquist looking at potential investment properties that he felt would meet my stated goals, which have been to maximize monthly cash flow income. If you want to live an active lifestyle on passive income….you’ll need a decent amount of passive income, so I figured that is what I needed to place my emphasis on.
Let’s just say that I was underwhelmed with the investment properties we looked at. Yes, underwhelmed. The properties weren’t in the nicest areas of town and wouldn’t be at the top of my list of things I’d be proud to show my parents that I own. This wasn’t my Chris’ fault, not in the slightest. He showed me what the combination of my goals and investment capital enabled. In past conversations I told him I want to prioritize and maximize positive cash flow with about 15K of investment capital. The result, we were looking at Section 8 (government subsidized) housing. Don’t get me wrong, I’m sure Section 8 is lucrative and serves the greater good, but I’m not ready to jump into this niche area of REI as my first endeavor.
I felt bad that I had wasted valuable time (both mine and Chris’). But the experience was worthwhile. I learned some more about REI, my goals, my desired property criteria and how much capital investment would be required to pull them all together.
The major lesson I learned is that if I want to maximize cash flow and have a nice property I need to bring a fairly large amount of capital to the table. The corollary is that with limited capital you can get cash flow if you lower your property criteria.
I prefer to have a nicer property so one of two things needs to happen, either my goals need to be adjusted a bit (less emphasis on maximum cash flow) or I need to save more capital to invest. Since goals are easier and quicker to adjust, I’ll be modifying those first. Basically this means trading monthly cash flow for a higher quality property in a better neighborhood with greater long-term appreciation potential. I don’t normally sacrifice my goals, but I think it’s important to have the highest quality investment properties in my portfolio that I can afford. I don’t need the cash flow today, so I can practice some delayed gratification on this one.
With a new goal in hand, I continue to stash away cash for a down payment, peruse the MLS for that perfect property and continue to mind my own business.
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