Need Feedback from tried and true landlords/buy and holders

[Account Closed]

I am looking for the guys who live and breathe this business with ACTUAL notches on their belts, rather than just completing the latest and greatest seminar (no offense, as I am a rookie too) to evaluate my proposed real estate strategy I'd like to begin implementing this week.

A little background information: I'm 22 years old, a recent college graduate in Accounting and am currently employed at a CPA firm here in town (about to begin studying for the CPA exam...pray for me). I live on the Mississippi Gulf Coast and have always had a passion for real estate (I get it from my grandpa I believe).

Anyway, here is a rough game plan for how I want to build my business. I'm focusing strictly on cashflowing rentals for long term appreciation and basically buy and hold (I need them to be strong cashflow performers so I can actually follow through with the 'hold' part of "buy and hold"). This is truly a "get rich slowly" strategy and I'm OK with that.

ACQUISITION:

I've just formed my LLC and am opening a business account to stick EVERY extra dollar in I have each month. I'm on a strict budget (I'm an accountant, remember?) and am trying to sack away as much cash as possible to buy a cheap first property with cash in the next year or two. In this area, you lower end working class rentals can be had for $45k-100k roughly and depending on the area will pull between $500-1100/month in rent.

As I'm saving up money for my first deal, I am getting maps of the area and basically zoning it out by price ranges and also by market rental rates (when I can find that). I'm trying to get a good cross-section of the market I'm working with and also a feel for the areas of the coast that are more likely to contain properties closest to the 50% 2% rule. While I'm saving up the money, I figure its prime time to get to really know my market and I'm going to commit time daily to get to know everything about my market I can. I feel this is critical for landlords rather than buying and praying you're in a good area.

Fast forward to a year or two and I've got money to buy a property cash, or nearly cash. I buy the property, get it rented through my system I am creating (more on that later), and have good cashflow (from both the 50% 2% rule AND no debt servicing requirements). I take the cashflow from this property (after setting aside roughly 50% in a seperate account for an 'emergecy expense fund, i.e. new roof, etc' + continue my contributions to the business account monthly. Now with a larger monthly contribution than originally done, I should be able to stack up money faster to acquire a second property with cash, or nearly cash in about another year or 2. Repeat the process, snowball both property cashflow + personal contribution and should be able to buy a property in a year or two again. Basically I want to keep snowballing the cashflow to buy property cash like this and not personally draw anything off the LLC until way later in life when I get tired of being a CPA. I figure by age 45 if I've been diligent I should have a nice cashflow situation and built in equity from appreciation. After about 10 years of this I should be buying properties 2 or 3x a year. All along I will have never sold a property (unless certain circumstances make it a very good deal) and will have a large net worth in my real estate portfolio and a strong cash flow position. I feel I will have mitigated risk as much as possible in this game.

TENANT PLACEMENT:

I am going through all of Bigger Pockets and finding everything I can about effective Tenant Placement and am going to try to build a system that works for me. I will have tenants understanding that if they don't play by my rules, they are out. They are not my friend, they are a customer. (I'm not heartless, I'm just not going to waste time and money on a deadbeat, I will stick to this philosophy within reason.)

Once I've got enough properties to make management a full time job, I'm outsourcing to a property manager and will focus my efforts on managing my property manager.

EXPENSES:

Mentioned earlier, I realize that on average 50% of collected rents go to expenses along the life of the properties so I will set 50% aside diligently in the LLC's savings emergency fund to kick Murphy out of the business.

MY LOGIC:

I am risk adverse. I've seen way too many landlords not treat this as a business and buy too high, negative cashflow (in hopes of appreciation??), have a bump in the road personally (and can't pay the negative cashflow!) and ultimately file BK. I'm not buying these to "live" on in the short term, so I really want the ensure that I can hold these for the long term while also building up funds to acquire more and more properties and ultimately be a huge property snowball for me. I'm a huge believer in systems and systemizing things to be as efficient as possible and will do this as much as possible.

Don't tell me that I need to keep a mortgage on a property for the tax deduction...NEXT...you pay out 10,000 to the bank to save 3,000 from Uncle Sam. If your CPA tells you to take out a loan for the tax deduction, GET A NEW CPA WHO CAN DO MATH.

Anyway, where are my flaws? I'm looking to move on this soon. Thanks! Sorry for the long post!

Daniel J. Payne

[J Scott]

Daniel,

Sounds like a very reasonable plan. If you wanted, there are certainly low-risk ways to jump-start your plan to likely allow you to generate the same amount of cash-flow without waiting 20+ years.

Leverage -- when used wisely -- is your friend. Certainly overleveraging is a bad thing and can ruin your business prospects, but conservative use of leverage to allow you to purchase an extra property or two or three during this recessionary period could allow you to grow your portfolio much more quickly than if you wait another 3 or 4 years to own even two properties.

That said, slow and steady is never a bad thing...if you're okay waiting 20 years instead of 10, that's a perfectly fine decision...

Congrats on the early start and great plan!