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Virtual THINKtank

Creating Your Own Road Map to Real Estate Investing Success

By Gilda Zaragoza - June 26, 2020

Recently, we welcomed Justin Cooper of Pine Financial Group to host another Virtual THINKtank. Pine Financial Group is a lender that helps real estate entrepreneurs invest in projects that help them reach their real estate goals. Justin said that more often than not, real estate investors are following a path outlined in a book they read, or may not have a path mapped out at all. This, he cautions, is not the way to execute your real estate investments. Rather, strict attention must be paid to your WHY.

Simon Sinek’s best-selling 2009 book Start With Why, encouraged leaders to lead with motivation and tap into humans’ innate desire to follow those with a sense of purpose. Justin says this same sense of purpose and clarity should drive your real estate investment strategy. 
Hence, the topic of our conversation was ‘Creating Your Own Road Map to Real Estate Investing Success.’

Justin began by explaining that a lot of investors follow many of the real estate investing “Guru’s” road map with the following investment path:
  1. Wholesaling. The entry level “no money needed” way to get into real estate investing.
  2. Fix and Flip. A more advanced and riskier next step after wholesaling. 
  3. Rentals – The ultimate goal being to acquire residential units for long-term buy and hold, cash-flow producing investments. 
  4. Commercial properties – the crème-de-la-crème of the real estate investment landscape. This is where the big players operate, replete with all kinds of different investment models, financing structures and ecosystem that seemingly separates the entry-level investor from the “professional” investor.
Justin says that this road map does not, and should not, fit everyone. Nowhere in the road map does it take into account your WHY. WHY are you investing in real estate? What do you want your typical day to look like? Do you want to have fewer, more expensive properties to manage, or more, less expensive properties? Do you want to own single family residences only, or look for multi-family? Do you care if those multi-family units are part of an existing HOA? The answers to those questions should absolutely inform your real estate investment strategy and that strategy should be unique to you. 

So, where should you start? First, you need to be honest with yourself and understand where you are today. 
  1. What is your current cash position? Do you have a significant amount of money to invest, or do you need to start small and build a larger pot of money to take the next step?
  2. What skills can you bring to the table? Are you good at finance and spreadsheets? Are you a people person who likes the thought of interacting with tenants on a regular basis? Are you good at remodeling and can handle small to medium-sized jobs yourself?
  3. What does your real estate investment team look like? Do you have a lender, an inspector, a list of trades to call? 
  4. Finally, what do you want your perfect day to look like? If you don’t want to be bothered with calls and emails from tenants, you should plan to use a management service for your properties and that is going to impact your cash flow and ROI calculations.
Now that you’ve taken stock of your current situation and what you want your future perfect day to look like, you can start to build your own unique real estate investment road map. How? You reverse-engineer it. If you know that you want $10,000 a month in free cash flow, that can either be (10) units at $1,000 per month, or (5) at $2,000 per month or (2) at $5,000 per month; you get the idea. Don’t forget to include all of your expenses – property taxes, property management fees if you’ll have those, etc. Many investors have been disappointed at their returns after buying properties because they didn’t do their homework. Pay special attention to HOA fees and any upcoming improvements that will require owners to pay an assessment for things like new roofing, decks or other community-related repairs.

At the conclusion of Justin’s presentation, we had a few questions:

Q: How do you determine what a good real estate market is?
JC: You want to make sure you’re not only generating good cash flow from your properties, but that you’re also in an appreciating market. Expenses are generally the same from market to market, so your purchase price, income potential and appreciation will determine how your investment will perform in 5-10-15 years. Ideal markets have a growing population and a diverse economy that is not too reliant on one industry or one employer. 

Q: Is there a benchmark ROI that you should target?
JC: Not necessarily. Good ROI targets differ according to the real estate class you are investing in and that will be determined by the work you’ve done on what you want your ideal day and portfolio to look like. 

Q: What are your thoughts on paying down a loan and losing the associated tax breaks?
JC: You should decide what helps you sleep better at night. Higher outstanding principal and more tax breaks, or not having a mortgage and paying a higher tax bill. For me, I’m happy to pay taxes because that means I’m making money. I sleep better at night having more properties free and clear, but that is different for everyone. 

Q: How do you decide what size multi-family is a good investment?
JC: Generally, 4 units or less is considered a residential investment, which is easier to get a loan for and you can get traditional 30-year loans. (5) units or more is considered a commercial investment and you’re into loans with 25 year amortizations that must be re-financed in 10 years. There are different commercial loans to be sure, but that example is pretty standard.

And with time drawing to a close, we concluded our conversation on ‘Creating Your Own Road Map to Real Estate Investing Success.’ 

Thanks Justin!