My strong belief is that everyone should have access to cash flowing real estate deals. Everyone should be able to invest in real estate to better their lives, increase their cash flow, grow their net worth, and secure their retirement. Many people who I speak with want to invest in real estate. However, I also get the sense regularly that people believe real estate investing is out of reach for those that are not high net worth ($1 million net worth or higher) or ultra-high net worth ($30 million+ net worth). I disagree.
Many of those that I speak with who want to invest in real estate also believe that there are too many risks. While there are numerous things that have to be considered, I firmly believe that that rewards outweigh the risks with respect to real estate investing. When it comes to business and money, I am cautious and conservative. I do not like to lose money and I do not want my investors, friends, family, or readers to lose money. I have never lost money in real estate. I have broken even, and I have had a couple of challenging deals, but I have never lost money in real estate and I have never lost a property. Maintaining that type of track record is not rocket science. It really just requires constant learning and discipline. What I do believe is that investing in real estate requires focusing on your personal growth and development, thinking about what you want to achieve, thinking about the paths that will enable you to achieve your goals, maintaining both determination and patience simultaneously, and ultimately, making a quick decision to move forward once you choose a property or passive real estate investment that you want to invest in.
Real estate investing is a combination of learning and self-reflection. Most people think you just need to learn about real estate terms, real estate in general, due diligence, processes to close property, processes to close loans, and the people involved in a real estate transaction (brokers, title, escrow, lenders, property managers, attorneys, lawyers, and accountants), and then take action. However, there is another aspect of real estate investing that is often overlooked by the beginner investor.
Real estate investing is all about self-reflection
Real estate investing takes time and thought, but it must be done. You need to understand yourself. You need to understand your goals and what you want to achieve as a real estate investor. You need to understand what you know, what you do not know yet, how much money you have, how much money you need to make, and your big why.
Real Estate Investing Goal Setting and Investment Strategy
Real estate investing requires self-reflection, and it is important to thoroughly consider the questions below when you are just beginning to invest. Below the questions, I have included my thoughts on each topic.
What do you want to achieve by investing in real estate?
Although I grew up in a middle-class family, I did not start out with a financial advantage. I did have an idea about real estate from my grandfather who had been a small home builder in New York and Florida. I heard his stories about retiring at 45 years of age and how he only sold properties when he wanted to or needed to. In fact, his properties allowed him to collect cash flow and capital gains at certain points over his retirement, both of which funded his retirement until his passing at 99 years of age – 54 years in retirement. His strategy did not leave a lot of money left over, but he and my Grandma were able to live the life they wanted to live constantly traveling back and forth from New York to Florida biannually without concern for money. Frankly, I decided that I wanted to figure out how to have that level of freedom where I did not have to work for anyone directly. However, since I had no money to start and since I am conservative by nature, I went to work for a large real estate investment banking firm to learn commercial real estate finance and understand what my real estate investor clients were doing so that I could emulate them as I learned the business.
What is your big WHY for investing in real estate?
My little why for investing in real estate is to become financially free. I invest in real estate so that I can have freedom to spend time with my wife and kids. The other part of being financially free is that I want to provide a safety net for my family for the future. My children are young, but I have been talking to them about investing from a young age and I hope these lessons help them develop into good stewards of wealth over time. My dream is for them to grow the family cash flow and net worth so that they can focus on the things that are important to them in the future – their families, their hobbies, and their charitable pursuits.
Ultimately, my BIG WHY is that I want to take care of my family. To do that, I want passive and semi-passive cash flow, and I want diversification so that I feel more secure in knowing that I have diversified revenue streams. I want diversification from asset type, geographic location, and Sponsor. That even means that I do not invest solely on my own or by myself. I know that I am a good investor and steward of capital, but I know that I cannot be good at everything, so I invest with other Sponsors that I know and trust who are very good at what they do too.
What location or locations do you plan to invest in and why?
I found that my clients had varying degrees of comfort with geographic investing. Some of my clients only invested in specific cities while some would focus on specific regions in a State, some would focus on a few States, and some were more focused on asset type than geography so they would invest all over the country. Then I met some investors who were actively involved in investing in foreign real estate as well as investing in real estate in their home country. This was very intriguing to me especially since I had already traveled to well over 20 countries by my mid-20’s and have now traveled to nearly 50 countries now that I am 44 years old.
As for me, though, my early investment strategy has not changed much. My underlying strategy has always been to invest in places where I have a need to travel and/or an ongoing desire to travel to. This focus makes real estate investing fun for me. I have expanded on that strategy over time especially when I am investing through my self-directed 401k for passive cash flow in deals marketed by other Sponsors. I have invested in nearly 25 States in the United States. I have also invested in real estate investments in 10 countries. I am still looking at other locales where I want to invest, but while I am avidly seeking diversification, I also want enough critical mass in each location to make the travel and management scalable.
What types of properties do you plan to invest in and why?
There are many different types of real estate assets that you can invest in. The four (4) main food groups for commercial real estate investing are multifamily apartments, office, industrial, and retail. There are a variety of additional real estate asset types that investors may want to consider, as well, including single family residential, hotels, self-storage, student housing, senior housing, and land. Investors can also look at investments in mortgages, trust deeds, and loan portfolios.
My first investment was in a mortgage trust deed. The first reason for that investment was that my career was as a lender. I understand finance and I understood the return on my investment. The second reason for that investment was, at that point, I also did not know what I did not know about direct real estate investments. The final reason was that I was able to start with $10,000 in the trust deed investment. I did not have a lot of extra cash at the time, so that investment allowed me to dip my toe in the water.
My next investment was a single-family residential property in Hawaii. I bought that property emotionally because I love Hawaii, I had lived in Hawaii previously, and I wanted an anchor to keep bringing me back to Hawaii year after year. Even though I ran the numbers and they did not meet my criteria, I justified the purchase on emotional rather than financial grounds. I broke even on that deal after 7 years of ownership.
Even early on while owning the Hawaii property, I concluded that it was not my wisest investment from a return perspective, so I decided that I would continue to stick to my investing principles and rules rather than allow my emotions to make the decision. While invested in the Hawaii property, I started making more money from my investment banking job. That allowed me to make investments in residential real estate, multifamily apartments, commercial real estate including office, industrial, retail, hotels, senior housing, affordable housing, single tenant net lease, parking garages, gas stations, and loan portfolios.
Which real estate investing strategies do you intend to employ (e.g. buy-and-hold, fix-and-flip, lending, mortgage investing, ground up development)?
I have been involved in all of the strategies listed above. My favorite is buy-and-hold. That does not mean you hold forever, and it does not mean that you do nothing to improve the real estate. What I try to do is find some way to add value to the property through property renovations, re-tenanting, financing or refinancing, management, finance and accounting, or a combination of these strategies. My least favorite strategy is ground up development. The reason for that is that many aspects of ground up development are out of your control including governmental approvals to develop, economic downturns, market demand, market rent changes, and availability of financing. But my least favorite part of ground up development is that there is no cash flow coming out of the property for 2- to 3-years. That does not sit well with me because too much can change in that time period. Ground up development is sexy because you get a new building, but I would prefer to own “B” and “C” class apartments and “B” class commercial properties in “B” and “A“ locations that have a good cash yield.
Guardrail Finance is a financial intermediary assisting real estate investors with financing their multifamily and commercial real estate and the firm also acts as a real estate Sponsor that offers co-investment opportunities for investors. The firm also offers a Passive Real Estate Investor Wealth Club that provides education, ideas, strategies, and investment opportunities for Members.
Real estate investing can seem complicated, but with self-reflection and concepts about what to think about related to real estate, you can determine the types of deals that you should invest in to increase your passive cash flow and grow your net worth. If you assess your goals honestly and determine what you really want to gain from real estate investing, you can do well and you can increase your cash flow, grow your net worth, and secure your retirement.
Let’s keep growing our passive cash flow and net worth together!