Kathy Fettke is Co-CEO of Real Wealth Network and best selling author of Retire Rich with Rentals. She is an active real estate investor, licensed real estate agent, and former mortgage broker, specializing in helping people build multi-million dollar real estate portfolios that generate passive monthly cash flow for life.
Today we will discuss the process behind building a portfolio of cash flow properties, where we are in the market cycle, cash flow markets, and more.
Building a Portfolio
You don’t need to already have money to invest in real estate, you just need to know how to get your hands on it. The first step is to figure out how you will get the money you need to invest, such as savings, good credit, an IRA, or OPM (other peoples money), to list some options. You need to understand your borrowing ability. Lenders are looking to lend money right now, the money is out there.
Investing for the long haul is a boring process - it doesn’t happen overnight. You won’t learn this instantly, it will take time. Here is an example to illustrate the timeline of how an investor could turn $250K cash into a $1MM portfolio.
First, invest in ten properties worth $100K each in a good market ($20K-$25K down payment per property). If these properties cash flow $300/month, that's $36K/year of income. The investor would then use that cash flow to pay off one property entirely. If the investor can pay off one property every 2.5 years, all 10 properties will be paid off in 12-15 years. At that point, the investor will have a $1MM portfolio.
This strategy can lead to retirement if the right market is selected, but it's important to remember rental property investing will never be truly passive.
First, Kathy looks for job growth, specifically jobs that are here to stay. The tech and medical fields are especially promising right now. Orlando, Tampa, and Cleveland are some of the markets on the radar for job and population growth. It's most important to make sure you are investing in the path of progress. The next 10 years are going to be the most transformational in human history. You must stay on top of trends or you will get left behind.
Metrics for Acquisitions
People need to realize capitalization rates are compressing - they won’t be as exciting as they have been. Even in high cash-flow areas, many institutional funds are happy with 4-5%. If you really want the higher returns, you’ll need to really dig for a good deal and do minimal repairs. Would this really be a higher return in the long run? Not necessarily, so the solution can be a mix of higher cash flow properties in third tier markets and lower cash flow properties in growth markets. If you can properly balance your investments in this way you could see returns of 7-8%. Fortunately interest rates have gone down, but rents and prices aren’t going up. The bottom line is that you won’t get the returns you did a few years ago.
With a passion for researching real estate market cycles, Kathy is a frequent guest expert on CNN, CNBC, Fox, Bloomberg, NPR, CBS MarketWatch and the Wall Street Journal. She was also named among the “Top 100 Most Intriguing Entrepreneurs” by Goldman Sachs two years in a row.
Kathy hosts two podcasts, The Real Wealth Show and Real Estate News for Investors — both top ten podcasts on iTunes with listeners in 133 different countries. Her company, Real Wealth Network, offers free resources and cutting edge education for beginning and experienced real estate investors. Kathy is passionate about teaching others how to create “real wealth,” which she defines as having both the time and money to live life on your terms.
Get in touch with Kathy and learn more about Real Wealth Network below:
- The website has data on the top 15 cities that are in the path of progress and are landlord friendly.
Twitter: @realwealthnet and @kathyfettke