My Real Estate Investment Efforts

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.

-Jeff

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25 Comments

Filed under Goals, Investing, Real Estate, Saving for Retirement, US Government

25 responses to “My Real Estate Investment Efforts

  1. Pingback: My Real Estate Investment Efforts · Invest-In-Real-Estate.ExplainedOnline.Net

  2. Pingback: My Real Estate Investment Efforts · Real-Estate.ExplainedOnline.Net

  3. tom

    I have to ask, why not section 8? It’s basically rent backed by the US Government. I agree that it’s not glamorous, but the US could use more future landlords instead of slumlords.

  4. Tom,

    Thanks for the comment. My main reason for wanting to avoid Section 8 right now is that I’m not interested in dealing with some of the tenant issues that I think might arise out of Section 8 investing. I have not owned rental property before, so I’m a bit leery of jumping in to the pool this deep my first time trying to swim.

    My fears are likely unfounded, but I think I need to have a couple smooth (if rental ownership can be considered smooth) experiences under my belt before I try that part of the market.

    Just my opinion, thanks again for yours.
    Jeff

  5. dw

    You might do a bit more research. Last I looked into it, the government not only guarantees your rent, but will also pay for repairs to the property after the tenants leave.

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  7. DW,

    My understanding after talking with my Realtor and potential property manger is that the Government sets the rent then subsidizes a portion of the total. Some portion will be paid by the tenant and some portion by the Government. The only sure thing is the portion to be paid by the Government. The rest has to be collected from a tenant that likely has a less than stellar rental history.

    As for repairs, your comment is the first I’ve heard of anyone saying the Government will pay for repairs. The PM I interviewed made it sound like repairs between tenants are pretty standard and owner paid. Something to look into.

    Thanks.
    Jeff

  8. Have you considered the leveraging power of OPM? As far as real estate investment niches and geo-growth potential, find the jobs and an influx of industries (check the internet and local Chambers of Commerce for statistical data to start- Market due diligence) that provide ongoing employment, and you will find people with the ability to pay rent and mortgages. People that work desire affordable, decent housing and pay their bills. Consumer/renters pay your mortgage when you acquire the right positive cashflow property (do the financial due diligence) that produces passive cashflow for you.

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  10. hey,
    want to wish you for your retirement. But I fail to understand why do you want property at this early stage when it can be delayed by perhaps 10 years. I think you should invest somewhere else if you dont need cash flow. Perhaps you can look up mutual bonds or something if you dont want cash for a longer period. Or perhaps something like the film industry if you want to cash-in in 2-3 years time. We all know about the profit-making capacity of such ventures. Would like to know your view-point on this.

  11. This is from my Treo so I’ll keep it short.

    You didn’t waste your time. You got educated. Hearing something and seeing it are two different things.

    And no, S8 does not pay either repairs nor deposits. At least not around here.

  12. @Richard – I’m trying to do all that you mention. The problem is ensuring I find properties that meet my goals. In this case I’ve reconsidered my goals and whether they were appropriate for my situation because I didn’t particularly care for the quality of investment properties they required.

    @UK – I hope to get 10 years worth of growth rather than 10 years of deferred investment. 🙂 I’m at a stage in my life (rapidly pressing 40) where I don’t need the cash flow, but rather would like to agressively grow my portfolio. I have the mutual fund and stock thing under control, and think real estate investment is an area of growth opportunity that I’m not taking full advantage of yet (other than my home). As for investing in the film industry…if you mean actually speculating on an individual film, I’d have to say no thanks, I’m not that flush with cash and don’t understand the industry. If, on the other hand you are referring to investing in Film Companies like Disney, MGM etc. then I could live with that if you analyze the company and it makes sense from a value investing perspective, i.e. a solid business with longevity that the market is currently undervaluing. Thanks for sharing your ideas.

    @Chris – As always, great inputs. You’re right, I didn’t waste my time, I was more concerned about wasting yours. Thanks for the added info on Section 8 details.

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  14. Real estate investing is a great way to create passive income or save for retirement. Now is the time to buy.
    Jon Christopher of Short Sale Way

  15. Jonathan,

    I hope to do both with my real estate investments. As for timing the housing market, I agree, it looks like a K-Mart Blue Light Special on properties.

    I also believe it’s a great time to buy in to the Stock Market.

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  23. Hi Jeff,
    I am glad to find another investor who is interested in the KC area. I have bought several properties in the KC area. most of them are rented section 8, and so far so good.
    what you said is very true that you need to find your own balance between good cashflow and higher quality house or areas. and in my opinion, if it’s the first property you are going to buy, it’s better to start small. I have made many tiny mistakes when I started out that I am glad it was a smaller investment.

  24. Jordan,
    Thanks for the comment. Come on over to my new website for Minding My Own Business and join the discussions. Additionally, if you are interested in KC investing, check out Chris’ Blog listed in my Blogroll.

    Thanks for reading!

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