I am new to the site and have been reading 6 hours a day for the past 4 days learning from the forums. Great site with lots of smart advice from helpful people.
I have $235K in cash on hand for investment and another $15K in a self directed SEP-IRA. I am considering investing in cash flow real estate but I have certain goals I would like to aim for.
First a little background about me.
I am originally from Baltimore Maryland and am 31 years old, with no kids. 740 FICO credit score but not many open credit lines. I am currently living in the Philippines for the past 2 years. I have been running a internet marketing business that has been earning me $16K per month in passive profits on average and claiming foreign earned income exclusion. My living expenses in the philippines is around $2500-$3000 a month but I party and live here like a rockstar and could get by on much less if I needed too. However I have been having alot of problems with the internet business recently and expect the business to stop making a profit any day now. I have a girlfriend here (7months) in the philippines that I really dont want to abandon her as she is very good to me. However I will always look after number one (me) and never make a decision as important as this based around a girl I just met 7 months ago. Money makes the world go round and if I need to return back the USA then that is what I will do.
I realize that I am in a very good situation to invest in cash flow real estate and set my self up for life so I never have to work at a day job and retire at a young age.
Here are my goals I have in mind.
I would like to return back to the USA for about 1 year and move into my fathers place for 1 year and buy 10-12 cash flow rental properties in one year. And then return back to the philippines and live off the cash flow for the rest of my life while claiming foreign earned income exclusion. Then after 2-3 years return again back to the USA and refinance the equity in the homes and buy a few more homes to improve cash flow even more.
I want to buy bank owned homes at deeply discounted prices, fix them up and rent them out, and never sell.
My concerns are as follows.
How hard will it be to get loans on bank owned foreclosure with 20% down?
With a property management company how hard will it be for me to live overseas in the philippines.
How will I be able to deal with tenants that skip out on me if I am overseas …Can I just turn them over to collections and forget about the rest, can I compensate with higher rental deposits and creative lease contracts. I cant be bothered with chasing dead beats.
Any other advice so I can structure a real estate business that will allow me to travel anytime, anywhere, for any length of time all while providing semi passive income.
How will the real estate market be effected if the dollar collapse? People will no longer be able to afford their rent?
What states would be best to buy real estate. I am thinking Arizona as laws their will allow me to evict after 5 days if no rent is paid. Any down falls for investing in Arizona?
Thanks for any insight.
I am sure I will have many more questions, but for now these come to mind.
I would say don’t invest in residential real estate rentals in the US if you’re planning on living in the Philippines. This is a sweat equity business. If you’re not prepared to get your hands dirty, you’re going to loose your shirt. If it were that easy, guess what, nobody would be walking away from properties and the banks would be holding onto them instead of taking losses to get it off their hands.
If you had a lot more money, I’d say invest in commercial plazas with triple net leases. From what I’m reading, you’d be better off being a private money lender. Otherwise, stick to the Internet business. Maybe even try your hand at rentals where you plan to live like the Philippines.
If you want to do real estate from afar it would be better to buy an apartment complex than single family houses. Apartments are businesses. They are set up as complete entities. If you read Gerber’s book the e-myth he talks about the difference between owning a business and being self employed. If you own the business there is not a box on the org chart with your name on it. You fill every box so you don’t work in your business you work on your business. In general the apartment complex will have maintenance people, leasing people, complex managers and then you have a property manager oversee that operation and you oversee the property manager. These will typically have a non-recourse loan (the enterprise funds the enterprise) but the loans tend to be 20 to 30 year amortization with a 5 year balloon. That means you have to configure it so that it earns enough to refinance ever 5 years and you will need to come back to do that.
You have to put down 20% plus expenses to get into one. What I would do is buy into an ownership partnership with an experienced managing partner to act as the property manager. If you have $250k and you have a partnership with 4 others you have about $1million to put down that means you can get a $4 – 5 million complex. You can get a complex for about $10k-$20k per door which is a 400 unit complex. That size complex would yield around $10k/month for each partner.
Where? The only time I’ve seen 400 units at $10-20K per door was a complex with an 80% vacancy rate and work orders up the wahzoo. Anything with a low vacancy rate gets scooped up by REITs pretty fast and lightning speed at $10K-$20K per door.
I think you should consider investing in the Philippines. It’s close. It’s where you want to live. It’s where your social center has developed.
Investing principals are identical anywhere in the world. The Philippine government is relatively stable and supports capitalism as much, or more, than the US. I could be wrong, but from all accounts it appears like a great place to invest.
And…I’ll bet you can buy substantially more real estate for the money, where you’re at, as opposed to the US.
Meantime, investing in the right multifamily projects can offer the potential of terribly reliable passive income for the rest of your life …especially if you’re willing to tackle under-performing projects. It’s not easy. Otherwise every schmuck would do it. But for the bold and courageous, the world’s their oyster.
DO NOT BUY SINGLE FAMILY HOMES THINKING YOU’LL BE THE EXCEPTION TO THE RISK OF BEING AN ABSENTEE OWNER. FAIL.
Otherwise, you’ll soon be the motivated seller, that gets cards from people like me, who’ll offer you 50% on the dollar, and you gladly take the haircut. Just saying.
Passive real estate investing is a great way to support yourself overseas. Here are my comments/advice about your questions:
20% Down is a minimum. With so many foreclosures for sale, it makes sense to check with the current lender to see if the loan can be assumed.
You will need a good property manager. Ask for references and check them all. You need to be prepared to pay a fair price if they are going to manage everything for you. You should sit down with a couple of companies and interview them.But it will be absolutely worth it in the end.
Deadbeat tenants are the property manager’s responsibility. That is what you pay them the big bucks to handle. Make sure you have their rental policy spelled out into your agreement so both of you know each others responsibilities.
You need to protect your personal assets from your rental properties. You can do this by setting up either a LLC or a Corporation to handle your investments. Then the corporation cuts you a check. Talk to an attorney to see how this can protect and benefit you.
People will always have to live somewhere. There is solid evidence showing that the economy is turned to a slow recovery. Rental rates are high in many metropolitan areas. I would not be over concerned with the collapse of the dollar.
As to investing in Arizona, it would be best to consult with local realtors. I hear Florida and Atlanta, Georgia are good options too.
Like the first two responders, I would suggest going commercial. You don’t need to look for 400 units as suggested, focus on 40 units or less. When you hire a property manager do not tell them you will be living in another country. Give them your father’s address and go get a Google voice number.
If this is going to be a long term hold (as I suspect it is) no need to worry about the dollar weakening. And if you’re spending it in the Phil. anyway you will have more than enough to still party like a rock star.
Dealing with tenants will be the responsibility of the property manager --Tenant screening, evictions, rent collections, etc…You need to spend time finding a really good one and always be in communication with them.
Other than a property manager, make sure you have a good Super in the building who can fix the little daily wear and tear on the property and who can give you first hand account of what’s going on with the building. Give him a little rental break and small salary. Usually you can take care of this but since you will be overseas, he will be taking your place.
Other suggestions, find a good attorney for anything legal and an accountant. If you’re IRA is a true self directed IRA and you can use it for real estate investment, when you buy the building bring the funds in there so part of the income it generates will go back to feed your IRA (speak to your IRA account rep. for details on this).
In addition, make sure you know the numbers that you want to achieve such as net income after debt service. Spend time researching good areas to look for the investment property; follow where there are job growth and not just cheap prices. They are cheap for a reason. NY metro is still expensive because there are jobs there unlike say Detroit.
Finally, if you think that your website business is on going down, maybe you can sell it before it stops producing income. List it on flippa.com to see if you can get a buyer for it. Maybe someone can resolve the problems you’re having with it. At $16k a month that’s $192k annually. If you sell it for half of its annual income that’s an additional $96k going into your real estate investment fund.
If you really want to invest $250k, I would suggest finding a friend in the States that is a full time investor who can JV with you. That would let you act as a capital partner with limited responsibilities to the ground work, but still an equity partner in the deal.
So it’s my opinion that investing in rental property with nice homes instead of run down properties is an often overlooked approach.
Is there money to be made fixing up “not so nice” homes and then using them for long term wealth creation by renting them out afterwards - YES!
However, there’s a bunch of other things that work to my advantage when I’m investing in rental property that is already in tip top shape.
Here’s a partial list:
* Buying nice homes is not exhausting.
If you've never invested before you may underestimate just how long it takes to find a run down home that meets your criteria (right type of home, right area etc.). Investing in rental property that's in good shape can be exhausting as well but the filtering process is much easier and a decent realtor can be helpful. And, the decision making process is easier because you're not constantly wondering what surprises you may be overlooking with a beat up home that needs work.
I would not count on the foreign income exclusion. The US will tax income earned from sources in the US, no matter where you actually live. I think your plan has a lot of holes that will leak money and your actual cash flow will be much less than you expect.