8 Ways to Supercharge Your Retirement Through Real Estate Investing

Most of us were taught that retirement is what comes at the end of working hard at a job for 30-40 years, accumulating a pile of cash, investing it into the stock market, crossing your fingers that there is not a market crash, then reducing your needs to only 4 percent of your portfolio balance…all the while hoping you don’t outlive your nest egg.

 

My friends, hope is not a strategy!

Thanks to the FIRE movement (financial independence retire early), we have a safer definition of retirement in which the income generated from your assets covers your expenses (and then some!). 

Thinking of retirement in these new terms means that with the right cash flow from your real estate assets, capital preservation, and great tax benefits, we can create a level of certainty and control for ourselves in our later years (and possibly make work optional right now). 

Yet when you Google “how to use real estate to retire,” you’ll find results like these:

  • Own your own home
  • Invest in real estate investment trusts (REITs)
  • Buy, improve, and flip a property
  • Purchase commercial property and rent it out
  • Purchase commercial property and run your own business
  • Buy a vacation home and rent it out part time
  • Crowdfunding

Don’t get me wrong, all of the above are valid ways to enter the real estate game. But there are some flaws if these “assets” are going to support your retirement. Consider these four questions:

  1. Does the asset preserve capital?
  2. Does the asset create cash flow now?
  3. Does the asset have the potential for appreciation (but not depend on it for success)?
  4. Does the asset yield any tax benefits?

The above are unlikely to be a solid investment tactic for our new definition of retirement. Not to mention that you would have to accumulate quite a pile of cash to retire with assets like these in 20+ years (which brings us full circle to our old definition of retirement).

So What Are Other Ways to Retire from Real Estate?

How do you build a real estate portfolio that you can retire on? Moreover, what if you are starting the real estate game later in life?

Below are four ways you can leverage rental real estate to fund your retirement, especially if you are just starting out or have limited capital to invest. (Stick with me though, as we will discuss scaling next!)

1. House Hacking

house-hacking

When you house hack, you outsource your monthly housing expense (in part or all) to roommates living with you or renters (if you buy a duplex). Any extra income you generate could be used to pay down the home or to save to invest in other places. You would purchase in such a way to preserve your capital, capture tax benefits, and position yourself for the appreciation “icing on the cake.” 

Repeat this process every two years for five years, and you could have a nice equity nest egg and multiple cash flow streams to live off of. Check out The House Hacking Strategy by Craig Curelop for more details on this method.

2. Turnkey 

When you purchase turnkey rentals, you continue to convert saved capital or re-positioned equity (think HELOC or home sale) into multiple streams of cash flow. And like house hacking, you would purchase in such a way to preserve your capital, capture tax benefits, and position yourself for the appreciation “icing on the cake.”  

RelatedTurnkey Properties: Should You Invest in a Turnkey Real Estate Investment?

3. BRRRR 

When you purchase a BRRRR (Buy, Rehab, Rent, Refinance, Repeat) investment, you accelerate your wealth and access to capital through forced equity. You buy the asset low, rehab the property to minimize your capital expenses for a few years, rent it to create positive cash flow, then refinance out your initial investment and repeat the process.  

It is possible to create infinite cash-on-cash returns this way; thus, you are only limited by the number of projects you can do at one time, the upfront capital required, and the amount of time you have to do the projects! And like house hacking and turnkeys, you would purchase in such a way to preserve your equity position, capture tax benefits, and continued appreciation. Check out Buy, Rehab, Rent, Refinance, Repeat by David Greene for more details on this strategy.

4. BRRRR-key

A little tip of the hat to Ali Boone for coining this phrase (brilliant!). This is my favorite way to invest in real estate and has been my go-to strategy more than 20 times! Essentially, a BRRRR-key is leveraging someone else’s time, knowledge, expertise, and networks to get the BRRRR done.  

Side note: All of the above strategies can be done with multifamily buildings, as well. The terminology just changes from “rehab” to “value-add” or “development,” depending on the extent of the rehab.  

Additionally, these types of portfolios take time to scale to the point you can retire off the income—unless you have the capital and network to purchase a portfolio of projects all at once. (Yes, it can be done!)

Let’s Take This to the Next Level!

Now that we’ve identified four of the core real estate investing strategies you can use to fund retirement, let’s build off these strategies and cover four ways to supercharge our scaling efforts and retire much quicker!

5. Buy 1 Property Each Year for 30 Years 

Small model home on green grass with sunlight abstract background. Vintage tone filter effect color style.

This strategy is simple and elegant. Buy one quality property for 30 years leading up to retirement. In 30 years, your tenant has paid off the 30-year mortgage on the first property, and now you sell it. You can live off the proceeds of the sale or reinvest all or part of this money back into future investments. (Ideal, since you are going to live way past 100!) And you still have multiple properties that are cash flowing to fund your living expenses.

6. The Buy-3-Hold-2-Sell-1 Strategy 

Chad Carson speaks of this strategy often. Each year, you buy three properties. I feel this works best with BRRRR or BRRRR-key-type properties, so you can continue to create velocity with your capital. You complete all three projects, then roll two properties (ideally the two best ones) into your portfolio, and sell the third to live off of. 

In five years, you have 10 cash flowing properties and a sizable pool of capital to continue investing or to fund your lifestyle. Combine this strategy with the above strategy, and now you are cooking with fire!

7. The Stack Strategy 

Brandon Turner speaks quite often of the stack strategy. It looks like this:

  • Year 1: Buy one single family home
  • Year 2: Buy one duplex
  • Year 3: Buy one fourplex
  • Year 4: Buy one eight-unit building
  • Year 5: Buy one 16-unit building—hitting hyper growth mode now!
  • Year 6: Buy one 32-unit building—you get the point!

In six years, you have 63 cash flowing units under your belt (with only six buildings to manage). Now that is a nice little next egg!

8. The Buy-and-Hold-to-Syndication Strategy

partners-networking

Where many investors get stymied with scaling is making the leap from purchasing single family homes to larger multifamily buildings. Now, for simplicity here, we are going to skip how to do your own multifamily syndication (aka being a general partner) and discuss a scaling strategy that anyone can do (even sophisticated investors).  

When you have scaled your single family investments to a point where you no longer want to add more units, you can then shift that cash flow and invest as a limited partner into someone else’s syndication.  

RelatedBuy and Hold 101: How to Evaluate Investment Properties

The reason I LOVE this strategy is because:

  • I can, again, leverage other people’s time, knowledge, expertise, money, and credit.  
  • If I partner on the right deals, I get similar cash flow, appreciation, and tax benefits as I would if I owned the property myself. (Yes, less any active income I could have gotten… for my syndicators out there!)
  • I get access to the economies of scale with multifamily, greater leverage, and greater diversification of geographical areas and asset types (multifamily, self-storage, mobile home parks, residential assisted living, etc.) than I probably could on my own.

So how do you fund a strategy like this? I use my single family and small multi-units as a mini-ATM, printing cash for me to invest in larger projects and I live off the cash flow of the larger project. This scaling solution does take a little more time to execute, but I can pair it with any of the above strategies and have a secondary exit plan for my retirement. 

Most importantly though, I get time to actually enjoy my retirement that I worked so hard for!

Conclusion

When you are thinking of how to retire with real estate, be sure you are evaluating:

  1. Does the asset preserve capital?
  2. Does the asset create cash flow now?
  3. Does the asset have the potential for appreciation (but not depend on it for success)?
  4. Does the asset yield any tax benefits?

And there is one more question to ask yourself… 

In 20-30 years (or whenever you want to retire), how do you want to spend your time?  

Because in the end… Isn’t control of your TIME what you want anyway? 

MARKET PERSPECTIVE

 
American Households Are Evolving[1]
 
There are over 1 million fewer nuclear family households today than in 2007.
Traditional nuclear household = married couple and their children
 
Nuclear Family Households: 1968 = 42%, 2018 = 22%
 
Today, young adults (ages 25-34) are most likely to live with parents, an unmarried partner, or a roommate.
 
Change In Various Living Arrangements (ages 25-34) Chart
 
And it's not just young adults: Nearly 15% of nuclear families live with a roommate or other family member.
 
National Household Composition Chart
New Home Construction Gets a Boost in August
New Home puchase mortgage applications jumped 33%[2]
Building permits, housing starts, and housing completions all up!
New home sales rose 7.1% from July and 18% from the year prior[4].
Typical mortgage payment cheaper than a year ago[5].
Mortgage payments had been rising annually for nearly three years, until dropping 3% in May 2019.
 
Like this content? Forward it to a friend or colleague, or share it on social media!
 
 
Sources: 
[1] Apartment List, Reconfiguring The American Household, October 2019
  [2] Mortgage Bankers Association, Builder Application Survey, August 2019
             [3] U.S. Census Bureau, HUD, Monthly New Residential Construction, August 2019
  [4] U.S. Census Bureau, HUD, Monthly New Residential Sales, August 2019
          [5] CoreLogic, a data and analytics company, The MarketPulse, September 2019

Preparing Your Home for a Smoke and CO Alarm Inspection

Are you selling your home? You need a certificate of compliance from the local fire department that shows your smoke and carbon monoxide alarms meet the requirements for a sale or transfer.

 

Preparing Your Home for a Smoke and CO Alarm Inspection

Every home should have working smoke and CO alarms. You must have a certificate of compliance that shows your smoke and CO alarms meet certain standards when you sell or transfer a home. This page helps you determine if your alarms meet requirements or must be replaced, and how to get a certificate of compliance.

  1. Find out when your home was built and the date the last building permit was issued for any renovations. Call the local building department if you don’t know.
  2. Call the local fire department to schedule your inspection as soon as you have a closing date. The department will issue a certificate of compliance if your alarms pass the inspection. Follow these steps to make sure you home will pass the inspection:
  3. Using the date your home was built and the date the last building permit was issued, figure out the smoke and CO alarms requirements for your home. These requirements are listed by date in the Guide to Massachusetts Smoke and Carbon Monoxide Requirements When Selling a One- or Two- Family Residence.
  4. List the location of all smoke and CO alarms in your home. Determine the age of each alarm. The date of manufacture is stamped on the front or back of most alarms. If you have to remove an alarm from its bracket to get the information, be sure to replace the alarm when you are finished. If there is no date on an alarm, it has expired and must be replaced.
  5. Compare your existing alarms and the requirements for your home to determine if you must replace any or all of the alarms in your house.
  6. If your smoke and/or CO alarms do not meet the requirements for your house and need replacement, you can purchase and install new equipment yourself or hire someone to do so. You may need an electrician to replace hard-wired alarms.
  7. Battery-powered smoke alarms that are more than 10 years old, or have expired must be replaced with alarms with 10-year, sealed, non-rechargeable, non-replaceable batteries. They must be photoelectric and have a hush feature to silence nuisance alarms.
  8. After your new smoke and CO alarms are installed, test them.

Your local fire department will charge a fee for the inspection and certificate. Call them for more information. If you have questions about the requirements for your home or inspection and certificates, call your local fire department.

Additional Resourcesfor Preparing Your Home for a Smoke and CO Alarm Inspection

Open file forRead the Guide to Massachusetts Smoke and Carbon Monoxide Requirements When Selling a One- or Two- Family Home for more details on all requirements.

FREE EGUIDE FOR BUYERS

Are You Thinking About Buying a Home?

 

The process of buying a home can be overwhelming at times, but you don’t need to go through it alone.

You may be wondering if now is a good time to buy a home…or if interest rates are projected to rise or fall. The free eGuide below will answer many of your questions and likely bring up a few things you didn’t even know you should consider when buying a home.

Simply click on the Send Me This eGuide link below, then fill out the form to receive your copy of the eGuide, and feel free to get in touch if you have any questions.

 

 

 

 

MORE RENTERS THAN EVER BEFORE SAY RENTING IS CHEAPER THAN BUYING, BUT ARE THEY RIGHT?

More renters than ever before say renting is cheaper than buying, but are they right?

Most Americans who rent their homes think this option is more affordable than buying, but they may not be right.

According to a recent survey by Freddie Mac, 82% of renters now view renting as more affordable than homeownership, that’s up 15 points from last year and an all-time high for the survey.

But the data also shows that renters actually spend more of their income on housing than buyers, with 35% of renters spending one-third of their income on rent, while only 25% of homeowners spend that much on their mortgage.

Renters cited the upfront costs of owning a home – including down payments and closing costs – as the biggest barrier to making the leap to homeownership. Also, 40% of renters said they thought a monthly mortgage payment would cost more than a rent payment.

Perhaps for all these reasons, an increasing number of renters say they are unlikely to ever own home. According to the survey, less than a quarter of renters said it was “extremely likely” that they would ever own – that’s an 11 point decline from four years ago.

Part of the problem, according to Fannie, is the student loan debt and the burden of child care.

More than half of younger Millennials age 23-29 who rent said student loans forced them to make a different housing choice, while older Millennials said the same, although to a slightly lesser degree.

Both groups of renters and owners surveyed said child care impacted their housing decisions, with the greatest conclusion being the selection of a less expensive home.

“Our research confirms much of what we see in our business every day – affordability remains the essential factor when it comes to determining whether to rent or purchase a home, and the cost of housing is having a significant impact on households of every age, size and location,” said David Brickman, president and incoming CEO of Freddie Mac. “For millennials and many Gen Xers, buying a home is no longer just a decision based on housing and housing costs – increasing pressure from student loans and the rising cost of child care are having a significant impact.”

“While we tend to focus primarily on wages not keeping up with house prices and misperceptions of down payments, we should also recognize that for many millennials and Gen Xers, the basic cost of living has gone up,” Brickman continued.

“Heavy burdens from student loans and the rapidly rising cost of child care are clearly affecting the housing decisions of these individuals,” he concluded. “Given these challenges, it’s not surprising that more than one-third of survey respondents believe ownership is becoming less accessible.”

THE ACHIEVABLE 8-STEP PROCESS TO LAND YOUR VERY FIRST MULTIFAMILY DEAL

 

The Achievable 8-Step Process to Land Your Very First Multifamily Deal

The most important deal you will ever do in this business of real estate investing is your FIRST deal. You can reread all the books and blog posts, attend networking events, and take courses, but nothing is like going through the experience yourself—from beginning to end.

Lately, I have been talking to a number of new investors who are looking to get their first deal underway. I thought it would be helpful to share a step-by-step process as you prepare to purchase your first deal.

multifamily-value

The Achievable 8-Step Process to Land Your Very First Multifamily Deal

 

1. BEGIN WITH THE END IN MIND.

The first step is to ALWAYS begin with the end in mind. As you embark on this journey of real estate investing, get super clear on your purpose—your “why” statement. I explain your “why” statement as this: This statement will inspire you and pick you up when you get knocked down and have thoughts of giving up.

You will get knocked down. It is not enough to say you “want to make money or passive income.” There are a TON of ways to make money and passive income besides real estate investing. You need to have a big enough, a deep enough “why” statement that leads you through the tough, frustrating, “I want to give up” movements.

In addition to your “why” statement, you should also gain clarity on your actual multifamily goal. What are you looking to achieve as a result of purchasing this multifamily?

Some want a certain amount of positive cash flow, some want a certain ROI—i.e., cash-on-cash return, internal rate of return, cap rate—some want appreciation, and the list goes on and on.

Everyone’s goals are different. What are yours? As always, you want to be as specific as possible.

analyze-multifamily

2. EDUCATE YOURSELF.

Before I bought my first rental property, which was a duplex in Waltham, I spent time educating myself. This included speaking (and learning from) as many people in the business as possible. I grew up around family contractors and their contractor buddy’s that would all invest in multi-family properties. Clearly, there are a ton of resources to educate you.

In addition to all the amazing articles and podcasts, get out there and make it real. I don’t know about you, but until I actually DO something, I don’t really learn it. You can talk about it, but it is in the doing of something that it actually becomes real and sticks.

My suggestion is to find a few successful multifamily investors that are local to you. Get to know them, learn how YOU can help them with their business, and in return, you will learn their business. You will learn how they find properties, evaluate properties, and make offers. Hands down, the “real life” approach is the best education you will receive.

partner-multifamily-deal

3. GET YOUR FINANCING READY.

Everyone says, “Find the deal and the money will follow.” I don’t 100 percent agree with this statement. If you are new to this business, it is very smart of you to get your financing in order BEFORE you look at properties.

I am sure you are aware that the market out there is competitive (not just locally but nationally). You have to move very, very quickly in this business to secure deals. The other reason you want to get clear on your financing before you look for properties is because you need to know your budget to help focus your search.

As you’re preparing for your first purchase, consider the following:

  1. What is the purchase price range that you are comfortable with?
  2. How much do you have for a down payment?
  3. How much do you have for unexpected operating expenses?
  4. What lenders/banks can you work with?
  5. When you interview lenders/banks, discuss with them their criteria for multifamily purchases. Some consider a four-plex “commercial real estate” and duplex and triplex “residential real estate.” This will impact the type of financing you can qualify for, so get clear with this BEFORE you begin looking at opportunities.
  6. If you don’t have an appropriate amount for #2 and #3, then you need to prepare yourself with alternative financing (hard money, private money, etc.).

multifamily-markets

4. DETERMINE YOUR MARKET.

Once you determine how much property you can afford (or are comfortable affording, I should say), you can better determine which market to focus on. There are people who do well in this business by investing in all types of markets. The key is to get clear on which type of market meets your goals. The best way to think about this is classify markets into A, B, C, or D-class neighborhoods.

Properties in D-class neighborhoods will be the cheapest but the most risky. Properties in A-class neighborhoods will be most expensive—appreciation is there, but cash flow might suffer. Over the years, I have acquired a rental portfolio in both B and C-class neighborhoods/markets. This has worked for our business strategy and focus. This might not work for everyone.

You also need to consider the ongoing debate—do you want to invest close to home or invest remotely? Most of my portfolio is within 30 – 45 minutes of my home (and I might add that my team manages, so we are very hands-on).

I am glad I have focused close to home for many years. Being hands-on helped us learn the business.

Determine your comfort level—what type of neighborhoods are you comfortable investing in? Study all the markets within 90 minutes of your home that could be good neighborhoods that meet your criteria to invest in. Determine the size of multifamily that works for your goals and that is in demand in your respective markets.

flipping-hot-market

5. DETERMINE THE TYPE OF DEALS YOU WANT.

Multifamily properties themselves are also classified as A, B, C, D, which refers to condition, age of building, and amenities. I am not going to get into too much detail on the definitions of each category, but a general rule of thumb is that “A” classification is newly built and in pristine condition, while “D” classification describes older properties in dilapidated condition.

As a new investor, I would suggest that the D-type of property might be too big of a risk. I would also say that the A-type of property is too expensive and may not meet your cash flow goals. For new investors, B and C types are probably where you want to start.

turnkey-market

6. FIND DEALS THROUGH MULTIPLE SOURCES.

There are a TON of articles to help you with this particular step. However, one bit of advice I can say is use every avenue you can to find deals. The days are gone when people could simply find properties on the MLS or at the auction. You have to have MULTIPLE strategies to find good deals these days.

Currently, I use wholesalers, REO real estate agents, regular real estate agents, commercial brokers, the MLS on a daily basis, and continuous networking. The key here is that you have to hustle, network, and meet as many people as you can who can help you find deals. I don’t care what anyone says—there are deals to be found in this market. You just need to hustle a bit more for them.

real-estate-market-study

7. EVALUATE DEALS AND MAKE OFFERS.

Once you begin to find deals, evaluating them is the next step. You want to have some type of calculator or software in place that can help you evaluate your deals. BiggerPockets has a ton of great calculators for Pro and Premium members.

I purchased a software many years ago called Cash Flow Analyzer. It provides income, expenses, cash flow projections, operating data, etc. We have been very happy with it over the years and continue to use it to this day to help us evaluate rental deals.

Regardless, you want to use something that helps you become consistent with running numbers. I have probably evaluated over 1,000 properties in the 30 years I have been investing in real estate. To this day, I still run the numbers and evaluate deals through our software.

Just the other week, I was excited about two multifamily deals, but after running them through our software, we decided to pass on them. Just be aware—new investors always underestimate expenses, especially maintenance expenses and management fees. When you begin to run numbers on your deals, get feedback from investors who have looked at more deals than you. This will improve your learning curve.

duplex-to-multifamily

8. DO YOUR DUE DILIGENCE.

Most new investors think once the offer is accepted, the hard part is done and they are going to sail smoothly to closing. Well, it does not always work that way. I am working hard on getting to two different closings on multifamily purchases for my clients that have taken longer than they should have. We have discovered environmental issues with both of these properties, so that has added another issue to deal with.

Regardless, challenges and curve balls ALWAYS come up on your way to closing. The due diligence period is there to help you gather a ton of information from the seller on the building. Don’t rush through due diligence. Do your homework, and make sure you know what you are getting yourself into!

I hope you found this eight-step process to be helpful and that it inspires you to take action and move forward toward your multifamily aspirations. Remember, Rome was not built in a day. Take steps each day to move toward your goals. This is a cliche, but it is the truth. Success takes a ton of faith and hustle, a bunch of tiny steps, and a commitment to NEVER ever giving up.

If your interested in learning more on multi-family investing please contact me, I have helped many of my clients find and secure some great investments. Remember, they are not found on MLS, some are, but the majority aren’t. 

I can be reached at 617.835.5749 john@teambelli.com

Let’s sit and chat about your next project.