What strategy would you choose?

Question

I'm 56 years old and feel like I am starting to invest too late. I will be moving $150,000 into a self-directed or a solo401K. My goal would be to grow my income as quickly as I can. I would be investing in the Nashville area, the homes here are on the high side for the Nashville area. This means I can not really count on appreciation.

I understand there a million ways to invest and I need to choose the one that works best for me, but I'd like to here a few suggestions to what might work best. Just about the only thing, I do not really want to invest in is section 8 property. If it is a SFH I'd self manage. I love the thought of apartment complexes but I think I'd not want to be part of a pool of investors but would rather be an active investor with equal partners.

One of my concerns would be tying my money up in one deal when I could have BRRRR and streached it out to 5 or 6 deals. My goal is to create retirement income.

Thanks,

Charlie

Scott Passman · Answer

@Charlie Shew If you could generate the kind of cash flow you need for retirement from 1-2 properties, why would you prefer to do it with more properties?  Each property has closing costs and you have to spend the time locating it which are all greater inefficiencies.  Yes, you would diversify more with 5-6 properties, but at the same time 1-2 multifamilies would also diversify your portfolio and potentially give you better cash flowing income.  At 56, I might strongly consider connecting with an experienced multifamily investor and working on acquiring a couple deals that way. It would help you scale up faster and get that cash flow generating much faster.

Devan Mcclish · Answer

@Ben Parrish We manage several single family homes in Murfreesboro and have no problem. Obviously wouldn't recommend buying in a market that is saturated but as of now we have no problem placing or keeping good tenants. Just speaking from my experience managing rentals in the area, not statistical analysis

Ben Parrish · Answer

@Devan Mcclish unless someone can change my mind on Murfreesboro, I wouldn’t recommend going into MB for rentals. The city keeps issuing building permits for new large apartment buildings. I’ve seen hundreds of new for rent apartments open up in the year & a half that I’ve lived here. & the duplexes that I drive by seem to have longer than expected vacancies. Just my two cents on the market in Mb... so, make sure you do your research on MB before counting on good tenant supply.

Mark Gliebe · Answer

@Charlie Shew Welcome to the real estate investment world.  It is never too late to enter the investment game and you are still entering a great market with plenty of opportunity and growth here in Nashville.  Would love to help you in your real estate investment ventures.

Cara Kennedy · Answer

@Charlie Shew - it's never too late! Good for you for thinking outside the box now. I echo what a few people said that diversifying into small multi-family homes (2 to 4 units) is a good way to get going. And working alongside someone more experienced will really help your growth - that's been my approach and it has accelerated my knowledge much faster than when I was studying/working on my own.

Also, with your funds in your self-directed IRA/ 401(k): if no one has mentioned it yet it's best not to OWN property in those vehicles so that you're still taking advantage of every tax benefit that you can in regular taxable accounts. If you haven't explored it yet, look into private lending for your retirement funds; people are often looking for loans for 6-18 months at ~12-15%. This could be a great way to get that money working for you while you sleep!

All the best to you and good luck with the work ahead.

Luka Milicevic · Answer

@Charlie Shew

Buy SFH all cash and then refinance out as soon as possible.

That would be the way I do it.

LEt me know if you need help finding deals in the area.

Devan Mcclish · Answer

@Charlie Shew Sounds like a good plan. Nashville is tough with the prices being where they are. You might want to consider Dickson, Murfreesboro, Antioch, Hermitage, Goodlettsville or another suburb of Nashville. If you need property management let me know!

Jonathan Bombaci · Answer

I Agree with @Scott Passman. In your position I would focus on how much cashflow do I need my properties to throw off and run towards that number as quick as I can. Lets say its $5,000 a month since that was my "enough number".  You could hunt for 10 SFH that would generate $500 a door per month in profit. If you BRRRR really well and do 1 every 6 months you're looking at 5 years. Instead you could BRRRR Two 10 unit properties or four 5-families that bring in $250 per door and end up with the same results. Even if each of the multi families took you 12 months to do it would finish faster and with 20 doors, which, in my opinion, is more diversification than 10.

Maybe the story is a little different if you have 10 years to buy 10 SFH's and you wanted to do all the work yourself. But if the goal is to get this thing up and running quickly so you feel secure in retirement I think you should consider looking at fewer larger properties to build your portfolio. It'll be faster and you can wait longer and be more conservative in the properties you select. Plus at 20 units you should spring for a professional property manager which will make the experience much more enjoyable and passive in retirement.

This is pretty much what I did. We bought 3 properties for a total of 24 units to reach our number and once we got started it took less than 18 months to do. The crazy thing is that the deals were so good, and the sellers were more sophisticated and understood creative financing, we didn't even need to refinance the earlier ones to buy the next ones.

Best of luck! Real estate is fun, I hope you enjoy it as much as we have!

What strategy would you choose?

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