Upcoming Memorial Day Weekend Trip!

Exciting news this weekend. My brother and I are making a trip out East to look for more investment properties. As I alluded to in earlier posts, the market in the Bay Area (and California in general) is surging, so finding good deals has become extremely difficult, if not impossible.

Dumb Luck

Luckily for me, I was able to secure two properties in the Bay Area last year, before the madness really kicked in. For those who are wondering, each property has appreciated about $100k since I closed escrow. I know, hard to believe right?

Check out this property, which is currently an active listing. It’s asking price is ~$100k higher than what I paid for in February. This property has also not been fully renovated, and the location isn’t as good (Again, I got really, really lucky in winning Rental Property #2 at $290k:

Property_SC
Similar property to Rental Property #2 ($290k + full rehab)

In general, I’m not a believer in appreciation. It’s kind of like owning a stock and watching its price fluctuate on a daily basis. I’m trying to build a passive/semi-passive income stream here, so I need my investments to pay me! Since I’m planning on retiring at 32, I need them to pay me a lot… and soon. That’s why I love dividend investing… and that’s also why I love real estate investing.

The Secret

The real beauty behind real estate investing (and my “secret” to retiring early), is to use something called the 1031 exchange. There’s a nifty little law in place that will allow me to cash in on my two Bay Area properties, and not have to pay a single penny on taxes (technically taxes are deferred, but there are ways around this)! That’s right, I’ll be able to capture 100% of the appreciation immediately, which is already over $100k/each at this point.

But there’s a catch. I won’t be able to take the funds and invest them in just anything I want (like dividend stocks). I’ll be forced to re-invest the gains back into real estate, and “upgrade” to something more expensive. But that suits me just fine, as I’ve just recently discovered that properties out in the Mid-West cash-flow quite nicely (20%+ cash-on-cash returns), which is also definitely much better than anything I can get in California.

So, I can take the $200k appreciation + built up equity/original downpayment and put down a downpayment for eight $100k single family properties (25% down for each would be $200k, excluding closing costs, etc.) that will cash flow about $250/each (after all expenses/mortgage/reserves). That’s potentially $2000 in semi-passive income each month! For these out-of-state properties, I will rely on hiring a property manager.

My original plan was to build an income stream of $1500/month to fund my early retirement. Since I haven’t done the 1031 exchange yet, I don’t want to jump to any conclusions… but it almost seems like I can already achieve the End Game… today. And just think, once the mortgage on each property is paid off… the sky’s the limit.

The Search

I’ve been doing a lot of research on out-of-state properties lately. I decided that I was tired of watching from the sidelines and wanted to take action. The only real way to learn about another market is to take a trip out there and immerse yourself in the surroundings. Talk to the locals, build connections, and see for yourself what’s really out there. I’ll be back on Tuesday with an update.

Happy Memorial Day Weekend everyone!

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You Get Lucky When You’re PreparedCan $100,000 Invested in Rental Property Retire Me RIGHT NOW?FI FighterOscarThe Stoic Recent comment authors
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Martin
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Fighter, this is exciting. Although Reals Estate is not what I want (although I wish, but I am a bit scared of it and as I mentioned in my previous comments I do not like all the work around it and with it), it is exciting reading about your journey to get more property. If you want you can come up and try Colorado. Vail can be a great investment property for you. You can come and spend some time and I bet you can find some good deals (still) in here or around (Eagle-Vail, Avon, Eagle…). Good properties for winter and seasonal renting (the winter renting is very juicy).

PK
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Pretty funny – our Bay Area house came with those same beautiful tiled counters, and the “once brown, not black” grout. I wonder how many years they were in vogue? Ours was ’76, but our neighborhood started being built up in ’75. People loved it for a while!

Oscar
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Oscar

Hi fighter

Well I hope you find good people and deals were are you going? Have you gone to a realestate investment club locally? I am looking to go.

Leigh
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Hope you had a good weekend! How did the trip go?

I’m so glad I bought last year – I figure that my place has already appreciated from ~$358k to a bit over $400k. I probably wouldn’t have bought in at today’s prices. Last year’s were hard enough to stomach!

The Stoic
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FI, Where in the Mid-West are you looking?

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[…] I first started looking at out-of-state properties, I took a trip out to the Midwest. After careful consideration, I’ve decided to focus primarily on the Indianapolis and Chicago […]

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[…] Around November 2012, I got a phone call from my real estate agent letting me know about a great deal. A beautiful townhouse in a fabulous neighborhood was available through short-sale. He said it was an absolute gem and an opportunity I shouldn’t miss. I saw how fast the real estate market was rebounding (open houses were always packed), so I didn’t hesitate and put in an offer the next day. One year later, I’ve rented it out for positive cash flow, and the property has now appreciated close to $100,000. […]

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