My First Foray Into Out of State Investing
Why I love the Mid Term Rental Strategy
Hello there!
I know I haven’t written my newsletter in awhile.
Sorry.
I honestly didn’t feel like writing. I was super busy. But lately I’ve had some thoughts that I wanted to type out and share so here we are…
In an article from earlier in the year I shared that I started a new job. That has been really exciting and has kept me super busy.
Despite that I am still pursuing financial freedom because I strongly believe in multiple income streams and not being solely dependent on a single stream of income, such as a W2 job, for your livelihood.
That being said I made some strides in the first half of the year to get closer to my goals.
I closed on this property depicted below at the end of April this year.
It is a four family property located in Saint Louis, MO. Each unit has 1 bedroom and 1 bathroom.
Why Saint Louis?
I did a lot of market research and determined based on the industry, economy, the prices and various other factors that it was the market I wanted to pursue my first foray into out of state investing.
The key appeal of this market is the demand for travel nurses. Travel nurses and traveling professionals require furnished rentals from one to three months at a time. They also pay a premium for these types of rentals because they are hard to come by. There are also several advantages to leveraging the mid term strategy such as less turnover compared to a short term rental and highly qualified tenants who are less likely to do damage to your property. Another reason I love this strategy is because the return is typically higher than a standard long term rental.
I realized last year that it will take significantly more time to achieve my goals if I continue to pursue investing utilizing the long term rental strategy. If you listen to investing podcasts people always talk about $200 per door being a good return. I’m sorry but $200 a month per door does not spark my interest. It takes a significant amount of energy to find a deal, close and implement your business plan. It also takes a ton of time to save up enough money for a down payment and these days you need to put up 25% down which is a lot of money. If I am going to maximize my investment return, $200 a door is not going to cut it.
Enter the Mid Term Rental Strategy
My goal was to find a property that cash flowed at least $1,000 a month. In New York State with increasing housing prices that was getting impossible to find. In Saint Louis the numbers worked. The market caters more to cash flow than appreciation.
The above picture is a quick analysis of the numbers on the property in Saint Louis. They look great but it takes hard work to get to what is depicted. I have a strategy and business plan that I am in the process of executing. I had three occupied units and one vacant unit when I purchased the property. I did some networking and was able to find great contractors in the area that helped me get the vacant unit up and running. Once it was ready we flew out to Saint Louis, furnished the unit, and I had it rented to a traveling nurse the next Saturday. I plan to repeat this process to the remaining three occupied rentals when they turnover. (This is the over simplified version of this story which I will gladly share more of in a future post).
Let’s compare long term and mid term rentals
If your goal was to have passive income of about $6,000 per month from real estate, you will achieve your goal a lot quicker using the mid term strategy compared to the long term strategy. If you were making $200 a month per door as long term rentals you would need 30 properties to achieve $6,000 a month in cash flow. With the mid term strategy you would need a total of 3 properties that cash flow at $2,000 a month to achieve $6,000 total.
One of the benefits of this strategy is lifestyle design. Managing rentals is hard work. A portfolio of 3 properties compared to 30 properties is a lot easier to manage. The way I view real estate is as an additional income stream and not necessarily a means to create another job.
I have been doing a lot of thinking lately about financial freedom and the life I want to build (more on this in a future post too). I think at the end of the day financial freedom is about designing the life you want to live and not sacrificing the things you love such as spending time with family & friends, traveling and overall just living your life. I love real estate because there truly is a strategy for everyone whether you want to be completely passive and invest in something like REITS or get very involved and flip houses. With real estate you can design the life you want.
I plan to share more details here soon about everything related to this property including how we purchased it, the story behind furnishing it and the next steps in the business plan, and most importantly my lessons learned about 0% credit cards.
For now, I want to leave you to ponder and ask yourself this: are you leading the life you want to live? How could financial freedom help you to build the life you want?
Until next time…
That looks like a pretty sweet deal! Have you had any tenant issues on the 4plex? I've heard some parts of St. Louis can have pretty high crime rates