Young Entrepreneur Seeking Advice on Diversifying into Real Estate

[Zachary Samuel]

Hello BiggerPockets Community,

I'm a 31-year-old business owner with a thriving enterprise generating mid seven-figures annually. My journey in entrepreneurship has been rewarding, and I'm now eager to diversify my investments, particularly in real estate. However, as a novice in this field, I'm seeking guidance from the experienced members of this forum.

Background:

• Age: 31
• Business: Growing rapidly with substantial disposable income that isn't needed to grow or operate. Currently sitting in 4.75% high yield business checking accounts
• Current Real Estate: Jointly own a single-family home in Pennsylvania as a residence, no rental properties.
• Residence: Pennsylvania and South Florida (during winter months).
• Investment Capacity: Approximately $250k per quarter as down money, open to starting smaller.

Goals and Preferences:

• Seeking a relatively simple and low-maintenance entry into real estate investment (not looking for major rehabs, value adds, etc. - unless I should still be trying to! I need to keep my focus on growing my business)
• Interested in residential properties (single or multifamily).
• Looking for advice on the type and value of properties to target as a beginner (my family owns a bunch of commercial real estate)
• Open to suggestions on expected returns and whether to focus on long-term leases or short-term rentals with management.
• Looking for suggestions on if I should look in both PA & FL (FL is significantly more expensive, but a drastically different market & renter)
• Primary objective: Diversifying assets, with a focus on slight income generation or offsetting expenses, and mainly long-term appreciation and growth in assets.
• Desired Return: Unsure, but 5%+ sounds great.

Given my limited experience in real estate, I'm here to learn and absorb as much as I can from those who have walked this path. What strategy would you recommend for someone in my position? Should I lean more towards single-family homes or multifamily units? What regions or types of properties would be best for a beginner like me, considering my financial capacity and goals?

Any insights, strategies, or even pitfalls to avoid would be greatly appreciated. My aim is to build a portfolio of assets that not only offsets expenses but also aligns with my long-term vision of financial diversification and stability.

Thank you in advance for your valuable advice!

[Shawn Parsh]

Zachary,

Congratulations on your business success so far. I think it is a great idea to diversify into real estate. I would suggest a few first steps. First I would research and speak with a qualified CPA that is experienced in real estate investing. You are a high earner and the correct tax advice for your particular situation is important. There are numerous CPA's on BP maybe even some located in your area. 

Second I would research real estate investing clubs in your area and get involved. In my experience a lot of the members are people "planning" to invest in real estate, but there are usually some in the group that are actual investors. I would network with them and start to learn what is working in your markets. Additionally, I think participating here on BP is a great idea. From what I have seen there are a ton of people with great experience that are more than willing to help others. 

As far as your investing strategy I would focus on residential properties to start. Jason provided solid advice about targeting multi-families. You may also want to start with a single family property to get your feet wet. In either case finding a good property manager is likely going to be a key to your success. If your main focus is your current business then you will need someone to handle the day to day responsibilities. I personally like a mix of single family and multi-family as an option. Much like you are trying to diversify from your regular business you can diversify within real estate as well. 

I would also find an attorney with extensive experience in real estate, in particular asset protection. I would ensure that my investment properties were owned in a structure like an LLC. If paying cash for the property or putting a large amount down I would make sure that I clouded the title. Maybe by taking an equity line of credit against it even with no intent to borrow against it. I'm not an attorney so get the proper advice before you make your first purchase.

As far as where to invest I would invest in your local market. Owning property from a distance creates more challenges. I'm not saying it's a bad idea in general just that when first starting out I would focus locally. As far as your desired 5% return I think you can do much better with the right investments. 

Anyway, I hope something I said is helpful. Good luck my friend.