Requesting Investment Strategy Advice for a Real Estate Newbie

[Conrado Balicusto]

I come from the Financial Independence Retire Early (FIRE) community and have already reached my financial goals. While I continue to work because I love what I do, I plan to stay in the workforce for the next 10 years. Now, I'm looking to venture into real estate investment for several reasons:

1. Diversify my investment portfolio
2. Build generational wealth
3. Lower my taxable income

My Investment Criteria:

1. Buy and Hold Strategy: I'm focused on long-term investments.
2. Cash Flow: Not a priority for me; I don’t need the income from these properties, even in retirement.
3. Acquisition Pace: I plan to acquire one or two properties per year. I will be injecting new funds every year.
4. Full Control: I enjoy analyzing deals and prefer to have full control over my investments, so syndication is not an option.

Given that I'm a complete newbie in real estate, I would greatly appreciate your advice on the following:

1. Selection Criteria: What factors should I prioritize when choosing properties?
2. Strategy Recommendations: What additional strategies should I consider to maximize long-term returns and tax benefits?
3. Pitfalls to Avoid: What are the common mistakes new investors make that I should be aware of?

Thank you in advance for your insights!

[Randall Alan]

@Conrado Balicusto

My thoughts for you…

Long term holds are much less labor intensive than short term rentals.

Cheaper C class rentals will let your investment funds to go further than buying A class properties.  You will make more money dollar for dollar (ie. buying 4 - $100k properties will net you more than one $400,000 property.). Tenant selection is critical though.  Know that children are rough on properties versus older adults with no kids.  

Likewise, leverage (financing) will also let your money go further and let you make more money dollar per invested dollar.  This also works out well for appreciation.

Accepting ‘zero cash flow properties' is really just a compromise on your part that I would suggest you not make. You want both… cash flow and appreciation. Without cash flow you will end up going out of pocket for any repairs and Capex expenses.

You achieve full control and maximum profit by investing locally and self managing your properties.  As soon as you bring on property management your cash flow on a financed property will drop by 1/3 (give or take).  We self-managed 20 properties while working 2 full time corporate jobs pretty easily.  Most solutions to property problems can be solved with a 3 minute phone call (plumbing / AC issues, etc).   Property managers still have to be managed, so they don’t alleviate your interaction with your properties.  Property managers also don’t have any incentive to save you money managing your properties.   I was quoted $800 by a property manager years ago to replace a $150 garage door opener.  We fired the PM the next day and started self managing our properties and haven’t regretted it. 

Hope it helps!

Randy