What would you do?

[Warren Foster]

OK, I'm not sure if this is the proper forum for this question, but I'm sure that if its not, someone will let me know.

Anyway, here is the situation. I am looking to put together a long term strategy for investing in Real Estate. I'm not a complete Newbie and currently have 4 rental properties, but we can exclude them for the sake of this scenario.

I have a cash flow of $15k in investable income that should stay consistent for the next 4-6 years.

Objectives.

1. Passive income stream to supplement current retirement income.
2. Drop the 9-5 and work RE full time after the 4-6 year period.

Limitation. I am a way, way, out of state investor that maybe gets back to the US once or twice a year if lucky for a few weeks.

Options that I am considering.
• All cash investment in low cost (30-50k) cash flow properties. Buy & hold.
• Use leverage to buy higher priced (50-150k) properties for cash flow and appreciation.
• Trust deed investing.
• Hard / Private money Lending.
• Multi-family properties.
• REIT's.
• Partner with local investors.
• Use cash or leverage to buy "Turn key" Rental Properties.
• Throw it all under a mattress, buy gold bars, or invest in survival rations and a good bunker.
• Combination of the above.

So, what would you do?

[Jon Holdman]

Yep, I didn't catch exactly what you meant, cash flow wise.

If your intention is to replace your income you'll need to invest in something that produces income. While gold may be a good hedge against some bad scenarios, it doesn't generate any income.

Hard money loans are generating double digit returns. Like for rental property, exactly what returns depends on how much work you're willing to do. If you use a broker, the broker will take a cut of the income. If you do it direct, you can keep it all, but you'll do the day-to-day work. That's true for rentals, too. If you're willing to deal with the day to day headaches, your returns can be quite a bit higher. Which translates into less property needed to replace your income.

You might consider using property management or a broker for now, since you're out of the country, then becoming more active when you get back.

Lending, whether you mean hard money, buying notes, or partnering has the disadvantage of being lumpy. That is, its very difficult to keep every penny invested. And you have downtime between when one deal cashes out and you can get the money re-invested. Nevertheless, if you have a big enough pot that you can minimize the amount of cash laying around as a percentage of your total bankroll, you should be able to manage an overall 12%. More if you're doing the loans directly. If you can accumulate $900K over the next five years, you could easily produce over $100K in (taxable) income from being a hard money lender. If that's enough to provide your the income replacement, you should be able to get there in five years.

If you're flexible, you should be able to invest in an area where you can find good, 2% deals. For example, $25K properties that rent for $500 a month. Subtract $250 for examples, and you net $3000 year on your $25K investment. That's also 12%. If you're doing the management and at least some of the maintenance yourself, you can probably pocket another $50-100 a month from that property. That's a pretty nice return.

If you compare the effort to manage that one unit with the effort to manage one $150K loan, though, I think the loan will win. Further, you really need six of those small houses to give you the return from the one $150K loan, and I'm quite sure that's much more work.