My rental property strategy is fairly simple. Find a home that can generate the cash flow with a reasonable return. I won’t go into the details into the type of home, city, specs, etc because every investor is looking for something different. Some want stable cash flow, others want home appreciation while someone else pays the mortgage and yet others want a quick flip.
For me, it’s cash flow at a nice rate of return. The infographic below shows what I do with the cash flow.
First, I take the excess cash flow from a rental property after paying off expenses and any debt, and move it to my brokerage account.
Second, once in my brokerage account, I buy municipal bonds which generate tax free interest.
Third, the income from municipal bonds goes back into the brokerage account and I re-invest in more municipal bonds.
Fourth, when my tax free municipal bond income reaches “critical mass” which means enough income for a down payment on a new rental property, I buy a new rental property.
I am at the point where I am reaching the point where I have enough money to buy a new rental property but I have not yet been able to find a good deal with the cash flow metrics that make sense so I keep re-investing in municipal bonds.
It has been over a year since I’ve written about real estate on this blog and that’s because there has been nothing to write about except that properties have been over-valued, didn’t make sense to buy, and the rising cost of insurance and property taxes have had me questioning the whole investment thesis.
A YouTuber I follow is Nick Gerli who has an impressive app to track real estate metrics and I am comforted with his recent videos where he sees the housing market slowly correcting to reasonable levels in some areas.
Other factors that keep me cautious is this administration saying they plan on banning investment purchases. I am well aware that the ban is for investors with 100+ properties but what’s to say that doesn’t change from 100 to 10 or to 1 at some point in the future if this program is successful?
AI Threat
I am also very worried about the fact that AI may wipe out a large chunk of white collar jobs. Even if just 10% of white collar jobs are eliminated, that will have a huge impact on the real estate market and prices could collapse because wages will drop across the board.
Why Bother Then?
If there are so many issues with rental properties, why bother? I believe in being well diversified into physical assets as well as paper assets. Right now, it feels my investment portfolio is too “paper” heavy and not enough “physical” heavy. I am considering buying physical silver metal on the next big correction as well.
Share The Wealth
If you’re a real estate investor, what do you think? Buy or wait?