Sort of forced into it (new landlord)

[Brent Baker]

My story real quick. My wife and I recently relocated from Louisiana back home to Florida where we're from. Our house wasn't selling, it was a very, very slow buyer's market where we were so even a full priced offer meant a loss on the house. But we weren't getting any offers at all, hardly any traffic. I remember someone I worked with moved and got a property management company to manage his house after he moved since he only lived in it for a couple of years.

I looked into it and was actually excited about the idea of this since at the time I was half way through Robert Kiyosaki's Guide to Investing. I had already read Rich Dad Poor Dad and The Cash Flow Quadrant.

Well, we got a tenant before the house even listed for rent and is currently generating, on average, $360.00 in cash flow after the mortgage and related expenses. My question is that our tenants have expressed great interest in buying this house after the two year lease they signed is up. I've run some numbers and if they do that, I should have something just north of a 100k to invest two years from now. With that much, where do people recommend investing. I like the idea of multi-family units and commercial property but I'm not sure if 100k is enough or if someone still so new to this should scale up so fast like that, e.g. one single family home straight to multi-family or commercial. Should I spend a few years with single family homes first?

As mentioned, I have a couple of years before I have to decide so I figured I'd start my education now. I've read through the beginners guide and they recommend posting here so I thought I'd get started on my education. Any thoughts or book recommendations or any resource recommendations are greatly appreciated. 

[Erik W.]

Hi @Brent Baker,

So you wanna be a LL?  ;-)

That's a fine goal.  Let's start with a few questions:

1) Where do you plan to invest: locally or out of state or a combination?

2) How much knowledge do you have about land lord / tenant law in the locations you plan to invest?

3) How deep are your pockets; do you have a "reserve fund" set aside?

4) How familiar are you with ADA and FFH?  If you don't know what those are...time to get educated.  Google is your friend.  I'll help..."Americans with Disabilities Act" and "Federal Fair Housing."

5) How are you with evaluating, hiring, and firing contractors?

6) What are your long-term goals and exit strategy?

That's enough for now.  

I'm not anti-Kyosaki, but you must realize he's a "big picture" guy.  He will not teach you how to invest in rentals: he'll simply tell you that you should.  "Buy assets, not liabilities and use other people's money to do it" summarizes about 30% of his books.  I saved you some time reading about 100 pages.  You're welcome...  ;-)

If you want some "down in the weeds / trenches" books on buy and hold investing, I highly recommend Leigh Robinson's Book "Land lording" which has become a staple for Land lords.  Get the most recent edition, even though it's still several years old.  Also the following:

1) "How I Turned $1,000 into $5 Million in My Spare Time" by Nickerson. 

2) "Buy and Rent Foreclosures" by Nielson

3) "Building Wealth One House at a Time" by Schaub.

As you can see, many of my recommendations are for the single family house land lord, so these might or might not be helpful. But in general, the advice applies to small multis (4 - 8 units). More importantly, the authors are considered "tested by time" as they've been doing what they write about for 30+ years and have weather recessions and two or more boom/busts cycles. The problem I have with some contemporary authors is they've only ever invested during an economic upward cycle. The past 10 years have been growth. I want to see how they perform in a down cycle and if their strategies hold up when values are going down and vacancies are up. For example, the BRRRR method which is often touted here doesn't work when real estate values are spiral downward like they did in 2009-2010...at least not as easily as they work today. Also, short term debt becomes a problem when banks aren't lending.

The truth is most real estate investors never grow beyond 5 units.  The "300 doors in 3 years" success stories that form many blogs and podcasts are not the typical path.  Maybe you will be one who doesn't follow the typical path, but keep in mind a lot of these guys/gals who have come up in the past 10 years haven't had their strategy tested in a downturn yet.  Nothing will make you go bankrupt faster than owning 100 doors and having 20 vacancies because the main employer in town closes its doors.  Owning 10 doors you might be able to make it based on cash flow from your W2 job covering the spread.  I'm not saying don't do it.  I'm saying find someone who has been doing it for 20+ years and talk to them.

Stuff to think about.  Best wishes on your success.