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REAL ESTATE Real Estate Investment Plan

REI

New Contributor
Oct 2, 2007
21
6
25
What do you guys think of my real estate investment goals and tentative acquisition plan?
Thanks!

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Goal
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Invest in 100 units of multifamily residential and commercial properties over the next 10 years (2008 - 2018) making at least one purchase every 2 years starting in 2008. The average net profit for the units will be $200 per unit with a net monthly income of $20,000 per month. Collectively, the units will increase at a conservative appreciation level of at least 6% annually.

Note: I am using S.M.A.R.T criteria for defining my goals.
Under this criteria, the goal must be Specific, Measurable, Actionable, Realistic,
and Time-based.

Reference: http://www.topachievement.com/smart.html
http://www.projectsmart.co.uk/smart-goals.html
http://en.wikipedia.org/wiki/SMART_(project_management)


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Plan
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I am still working on the details of my plan.

Generally, I plan to start out slowly acquiring properties every 2 years starting in 2008 with the purchase of a quadraplex. As I gain more knowledge and experience, I plan to add more properties. The 2 year wait period gives me an opportunity to stabilize my newly acquired property, increase appreciation using force appreciation (improve property and increase rents), allow inflation and demand appreciation to increase value, and equity to build up. The increase in value of my current property will be used to secure financing for next property.

Attached is projected schedule of acquisition.
 

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Adam

New Contributor
Aug 12, 2007
68
15
20
Minneapolis
It's great that you have taken the time to outline your goals and planned acquisitions. However, in real estate, it's almost impossible to have a narrowly defined 10 year plan. Look back at the last 10 years, its been crazy. No one has been able to accurately predict anything. You have to be able to adapt to current market conditions, and that may mean curbing your purchases for a set period of time or possibly accelerating your purchases. Also, while multi-fam seems to be a preferred investment at the time being (and probably always will), you have to be open to other property types as the market changes.

I don't have a solid answer for you (and I may be wrong), but I think you may be better off having a broad 5 - 10 year plan and narrowly defining your 2-3 yr plan.

For example, we are always acquiring properties, but we are in a mode where building capital is our primary goal. So, almost all business decisions take that into consideration...and this will be the primary goal for 2-3 years. However, as we do buy properties now, they are purchased with one of two intents. Very short term hold (1-3 months) and long term (15+ years). We are not comfortable enough with the current market conditions to make a short term prediction (1-5 years). The very short term holds are done with capital growth in mind and the long term holds are designed around your typical long term growth and stabilization strategy.

I think that you are on the right track, however, I have a feeling you will veer from your current plan within 2 years. Most people do as they start to truely learn the business and that takes a couple years.
 

PurEnergy

New Contributor
Jan 4, 2008
177
15
27
I'm not familiar with your situation or current income.

If you are considering being a landlord you MUST have reserves of somesort somewhere. Your properties will go vacant and there will be potentially thousands spent in between tenants just about everytime. Ask me how I know. And things break unexpectedly. Imagine getting up to just five properties and having a few go vacant at once. The two hundred a month per property doesn't pay for much. It's barely enough to keep the property/business running. Rental property is more like money in the bank until you get to a certain number of properties.

If you're serious, I would not recommend buying in "warzones." And in this environment try to avoid major rehabs. There's enough to go around right now for everyone. Let those who know how to rehab do the rehabbing. Make offers at around 50% depending on where you are. Do your homework first and stay close to home at first as it will make your life MUCH easier.

That being said I would get some while the getting is good. BUT, don't get into deep all at once. Try it for a year with one or maybe a few houses. See if you like landlording first. It's a long term investment. Landlording will not make you rich quick. At first it is simply a lot of work and very little if any money. Two hundred dollars a month is nothing. It's the equity or money in the bank that you are working for in the early stages. You are building wealth rather than getting rich.

Try it, you might like it.
 

andviv

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REI, rep++

It takes a lot of effort to define your goals and then put them on paper, and then, even more, to present them here for everybody to see/criticize/comment.

About your plan, I like it. The long-term plan should give you a road map and then you will have to define some time frame to review it and retro feed it for improvements/adjustments. So add there somewhere how often you are going to review it (every 6 months? every year? who will review it with you? how to hold yourself accountable to this review?).

Also, although the goals are specific, you are taking for granted the locations. I think you may want to specifically define the locations, at least for the first one or two planned acquisitions. I assume that you are planning to buy locally (meaning some 20 miles from your house) but is your area improving? is the economy going up? jobs coming to the area? are people coming or leaving? This is very important for appreciation estimates. Are you willing to buy a 24 units property in another state if the numbers make sense? or you prefer to keep an eye on the property? (this varies depending on your personal preferences).

If you are forcing appreciation but you also have a goal of $200/mo per door you may be in a small 'situation' there. If you have to force appreciation then it probably means you have to acquire properties with very low or even negative monthly cashflow and this should improve once the property has improved and you can raise rents and/or reduce costs. Makes sense? (I don't know what price per unit you are targeting so $200 may be difficult if the properties are $20K per door and rents are only $250/mo).

Also, I noticed that you don't plan to sell and trade up the properties. It probably will be the case that you will reach better economies of scale by consolidating into bigger properties (i.e. at the end having 2 buildings with 50 units each, or even just 1 with 100+ units).
What if you sell the 4-plex and buy 16 units as the second property?
Have you also explored the idea that, after the first two or three properties you will have more experience and probably will be able to buy and stabilize properties faster, allowing you to buy one or two every year?

So I am just making these comments to start a conversation and understand better where you are coming from and why you plan to take 10 years to get to 100 units. Can you believe I had the same basic idea not long ago? Now I am working on finishing the details of my plan to make it to 100 units in a mater of three or four years, but now it is easy as I've seen others done it. Before that I used to think that was impossible. And now that I know it can be done I am working on making it big time (why bother with putting the time in planning if the plan is not big?)

Probably you can tell that this is a topic I like ;)
 
OP
OP
R

REI

New Contributor
Oct 2, 2007
21
6
25
Thanks you guys so much for the feedback.

Adam,

I think my plan will change in the next couple of years. As I gain knowledge and experience, market conditions change, and opportunities present themselves, I will make adjustments. But, I strongly believe that you must have a plan in place before you start to invest. Oftentimes I see people with no defined plan jump from one investment opportunity to another. Having a plan helps me stay focus.


PurEnergy,

I appreciate your words of encouragement and advice on acquiring properties.


andviv,

Thanks for the recommendation of adding in time for reviewing my plan. I think that is extremely important.

For the first couple of properties I plan to purchase them locally. I am still in the process of defining my criteria for evaluating local market conditions. If market conditions are not optimal for my desired appreciation level I will consider other locations or increasing the timeframe between purchasing properties. It is more important for me to get started and make adjustments later than waiting for optimal market conditions locally.

I did explore the idea that as I gain more experience I could accelerate the purchasing of properties. The main reason for keeping the 2 year waiting period between purchases is come with the capital need to acquire next property. My plan centers around using the appreciation from one property to acquire the next.

I agree that I could make my plan more aggressive. In the timeframe that I have given myself to acquire 100 units I could have acquire 200 – 300 units (possibly 500 units). But, decided to make this a family plan. It is more important for me to go at a pace that my wife is comfortable (eventually our kids will have to take over) than going to aggressively. My wife’s grandfather spent over 40 years acquiring 30 – 40 homes in which he owns free and clear. As it stands now, my wife is on board with investing in real estate, but not as aggressively as I would like to go. Maybe this will change in the coming years.


A Little About Me!
I am 34 years old and I live in metro Atlanta area. I am a computer programming by trade and still work fulltime as a computer programming. The plan is eventually give up the programming gig to become a fulltime real estate investor. I make good money as a programmer. So, it has been hard to just walk from it and jump into real estate investing fulltime. However, looking at my colleagues (many are nearing retirement), I have no desire to work until 50 or 60 something and hope I can retire. I have about 8 people in my branch of about 25 who will be retiring in the next 5 years. Many of them are contemplating retiring and returning as part-time or fulltime consultants. For some, they must continue to work. For others, they are afraid of running out of money. I want no part of this. My goal is to be financing independent by the time I am 45.

In the last 2 years I have acquired a real estate license and attended loan officer training. My plan is to use my real estate commission on my deals to help with down payments or serve as cash reserve. My loan officer training was primarily for knowledge. However, I have used this knowledge in negotiating lower closing cost on my home purchase last year.

I have my real estate license under a broker who specializes in apartments. He owns a few hundred units. I am working on defining my plan more in order to get him on board as my mentor. He requires a written plan before even discussing the possibility of being a mentor.

I have a few family members and friends who are home builders and others who own rental properties (single family homes). My wife’s grandfather owns the most (between 30 and 40). He owns all of his free and clear. None of my family members or friends owns any apartment buildings.
 

Cmbilt

New Contributor
Jan 25, 2008
32
2
9
Apartment complexes are good investments because they have cash flow. If you are looking at real estate, always look at the cash flow you can get out of them. I have two beach front high rise condo units, one in Biloxi next to the Casinos, and one in Panama City Beach. Panama City Beach cash flows pretty good(rented 27 weeks from March to December last year) and we just closed on our Biloxi unit(it appraised for $49,000 more than our contract price). I am splitting up both of these condos into fractional ownership(deeded ownership), 8 shares in each. You should think about buying condos and then selling partial ownership to other investors. For me in the past, it has been a win win situation for both parties. Cash flow for me and ownership( and cash flow for buyers - rent or use your weeks) for others. Plus anything on the beach will almost always go up in price(our buildings are brand new and we bought each pre-construction). It also develops risk managment techniques that are always important in real estate investing. Hope this helps. You can visit my properties at www.cmbilt.com
 

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