Setting Daily Goals and Learning from Insights
Still chugging along since my last post. I finished Set for Life a couple of weeks ago. The book overall kinda sucked – mostly because of the writing style and writing emphasis. If you are a 20-something, yuppie who’s used to being taken care of by your parents but now crave independence but don’t know how to achieve it – this book’s for you. The book kinda reads like a college capstone writing project or something – mostly because it’s chock full of filler sentences. The author says one thing – then says the exact same thing 2 or 3 times again paraphrased in a different way – pretty annoying. The biggest takeaways I got from the book were the theme of frugality – which was talked about throughout the book – and the importance of documenting your goals. Being frugal to amass savings and staying frugal to secure early financial freedom – are important points for me to stay true to. Since reading the book, I’ve started documenting my goals/activities in log on a daily basis.
The goal log I created is really helping me get a sense of how I’m spending my time – i.e. am I using it wisely? What am I able to accomplish in a given day/week? If in a week I’ve been pretty productive, it’s a nice pick me up to see that visually on paper. If I’ve slacked off and vegetated to Netflix movies the majority of the week – it pushes me to do better next time.
I’m now reading a new book: Multi-family Millions by David Lindahl. This book is about multifamily repositioning (upgrading then holding or selling for profit). I’m 30% in and have been taking mad notes so this is definitely a more informative read then the last.
This book and two other podcasts I’ve been listening to: Apartment Building Investing and the Real Wealth Show really have me excited to jump into multifamily investing (thru housing hacking). They’re also expanding my thinking to investment possibilities beyond just the Metro Detroit area.
Multifamily Millions and the Real Wealth Show both discuss the importance of identifying and investing in emerging markets. It’s within these markets where real money can be had. Often these markets are ones where a large amount of investors are hesitant to invest because from the outside they appear beat up and with no/low potential. But in actuality, these places are on an upward trajectory. Kathy Fettke, the host of Real Wealth Show, in one of her podcast episodes talked about the signs of an emerging market. Specially:
- city/localities adopting growth and pro business policies
- increased job growth
- decreasing unemployment
- increased population growth
- businesses moving into or expanding.
In the Midwest she’s identified Cleveland and Detroit as being emerging markets. I don’t know much about Cleveland (yet) but I think Detroit (as a whole) right now doesn’t fit every single one of those bullet points, but it’s definitely on tap to get there. Investment in midtown and downtown has already made people who purchased real estate down there (for cheap) pretty wealthy (wealthier) people. Those areas specifically have experienced all the above on the list. As attention by the city and private business entities points outward to the surrounding neighborhoods – there will be more opportunities for smart investing with the potential of big rewards. I’m staying cognizant of the areas where investment by private entities is already happening or is on tap to happen. I’ve also taken notice of the areas where properties have been appreciating and where the demographics are stable (homeownership, unemployment, median income) to guide my investment plans. This, in addition to some insights I’ve gained from my real estate investment (REI) analysis homework, has led me to change my initial target areas.
Practice Makes Perfect
Thus far I’ve analyzed over 20 properties – multifamily and single family. This has led to a couple of insights….
Insight #1: There are way more single family homes (SFH) than multifamily properties in my initial target areas . My initial target areas were: Redford, Westland and Garden City. There are practically no multifamily properties in Redford, very few in Garden City, and some in Westland largely congregated in the same areas.
Insight #2: Cash flow for SFH in my target areas is lower than cash flow for multifamilies in other areas. The market rents in my target areas are not as high as market rents in some of the other areas I’ve analyzed.
Based on these two insights – I’m redirecting the bulk of my attention to analyzing properties in other areas. I’ll continue to analyze a few SFH in my original areas every once in awhile to confirm whether my thinking (that I’d get less cash flow investing in SFH in these areas) is accurate, but for right now I’m concentrating on other areas.
Insight#3: Most multifamilies (for sale) in the Metro Detroit area are in Detroit. These run the gamut in terms of quality, though. Keeping in mind my interest in emerging markets, right now I’m narrowly focused on just a few neighborhoods in Detroit. Unfortunately, there aren’t a lot of properties for sale in these neighborhoods. So, I’ve expanded my search to include areas with a good supply of multifamilies. Eastpointe, Warren, Roseville, and Mt. Clemens, MI all have a good amount of multifamily properties. In expanding my mind to the possibilities of investment in other areas – I’ve also started thinking of investments in Kalamazoo, MI.
Insight#4: Kalamazoo is definitely an emerging market with a ton of multifamilies. I’ve been researching Kalamazoo and it mirrors the history of Detroit in a lot of ways. In the past the city’s economy was dependent solely on the auto industry . When that industry began closing plants, jobs left, unemployment spiked, poverty increased, and people moved away. The physical manifestation of divestment in a community could be seen in the city’s derelict old (but quality built) properties. But now, the city is on an up swing – the indicators of an emerging market are all in play in the area. In addition, the city’s economy is now more diversified. The healthcare/medical research/pharmaceutical industry is the number 1 employer in the area. Though the auto industry has come back to secure a spot as the 2nd largest employer in the area – there are other industries that are investing in the area as well. I’ve started analyzing some properties in the area and at first couldn’t believe how cheap real estate was there. Like this multifamily – a duplex with a tiny house in the back (a little waterfront property) all for $125,000. When I first saw it, I was like wooowww, I would love to house hack this!
I found similar multifamily properties closer to the city core – vintage, beautiful properties, all seemingly intact, most with upgraded mechanicals (electrical, HVAC, etc.) for less than $150,000. But then, I started analyzing the numbers and found that market rents in these areas aren’t that high. So, I’d have to get a property at a good price to make it worth my while. But the amount of properties for sale, the quality of the properties (for the price), along with the emerging market indicators all have me contemplating a move there for my first house hack. Obviously – I’d have to be able to get a job there first – so I’ve also been looking into that, too. Analyzing properties in Kalamazoo – really brought it home how important this practice is.. On the surface anything can look like a good deal until you break down the numbers. With practice, I’m starting to get a better sense of REI concepts like cap rate, cash on cash return and return on investment (ROI).
Insight #5: In order for me to get the cash flow I’m wanting per property ($200 net cash flow) cap rates have to be around 13%. In the areas I’ve analyzed, more multifamilies than SFH meet this standard. Cap rates below 9% mean I’m not going to get the cash flow I want. The pattern in cash on cash return is a bit murkier to track since it takes debt service (use of mortgage money) into account and I’ve been analyzing using different mortgage assumptions (i.e. conventional vs. FHA). I think I’ll reorganize my spreadsheet to see if I can spot a pattern there. For ROI – I’ve found the amount of equity I’m getting in a property makes the largest difference in this number. The sweet spot is getting a property with 20% equity or more at purchase. So, it’s better if I can purchase a property for $60,000 that’s worth $100,000 (after-repair value) and put $20,000 worth of repairs into it than purchasing a property for $100,000 that’s worth $100,000. My cap rates/cash on cash returns might be similar for these two properties but my ROI will be lower possibly even negative for the second property. So, something else for me to keep in mind.
Are you investing or interested in investing in emerging markets? Please leave a comment below!
Motivating Mantra: “Regularly Track Your Goals”
I’m reaching a point where I really just want to take action but I still: a.) have a couple more months in Korea, b.) a house to sale, and c.) a job to find before I can take my first actionable step. So, I’ve been daydreaming more and sticking less to my reading schedule and analysis practice. But tracking my daily goals has really helped me get back on track. Your mind can sometimes tell you you’ve been more productive than you actually have. It’ll tell you that it’s okay that you weren’t productive for one little day (erasing the memory of the whole last week when you also weren’t very productive)! But seeing what steps I’ve actually taken toward my goals or ones I’ve failed to take, really helps bring me to reality. It’s definitely something I’ll continue to do.