Cashflow Property

Managed correctly, Rental Real Estate is a great asset to have in your personal investment portfolio. Now, I haven't taken the risk of buying 5+ properties to have the passive income cashflow to fund my life entirely, but it has provided the additional income to grow my portfolio.

Everyone has to start funding investments from their hard-earned wage income.

But once you have those investments, have them fund future investments! That's mid-term goal!

Real estate is a great segue to meet that goal.

Up front, we rented properties that were our primary residence and rented them out once we moved.

Keep going for my thoughts and experience as a beginner real estate investor.

A modern storefront that attracts customers with its inviting design.

My Properties ...

Thankfully, being Active Duty U.S. Navy, you can be stationed in lucrative and high demand real estate markets. For me, it was San Diego and Hawaii.

In both places, my wife and I live in condos that we bought with the plan to rent them out once we moved to another duty station.

The Market

Since we lived in the property, we knew all the benefits and costs of living in the area. We knew what needed to be maintained and had an idea of who to call if there was any issue with any of the equipment in the house.

Walkable or nearby restaurants.

Local gyms.

Grocery stores.

Farmers Markets.

Schools.

Services.

For any news happening in the local area, we would know have a good assessment of the impact to our property and the tenants that decide to live there.

Property Management

This is an important decision. For us, it impacted the longevity of our rental and how long we decided to keep it. Here's a brief list of tips as a passive landlord.

Hiring a Property Manager

We had neighbors who were tenants. So we linked up with the property manager who managed our San Diego condo for eight years before he retired. Then he linked us up with another manager with similar principles - only modernized! Here are our some thoughts.

• Stayed Plugged In to the Market. He knew the dynamics of upcoming growth and the rents of competing properties. When it came to renew the lease, he had good recommendations on whether to increase the rent or to have a slower increase to keep great tenants longer.

• Mechanism for finding the right tenants. Knows and implements sites for best advertise when we need to find a tenants.

• Personal Network to Home Repair Professionals. If the condo needed new paint, a plumber to fix a leak, an appliance needed to be replaced, or the air conditioning unit needed to be service, a good manager had them handy to respond.

  
  

Managing it yourself

We did this for the Hawaii condo. Unfortunately, every Google search turned up Property Management companies with bad reviews. The reality is that Hawaii homes are maintenance-intensive, so there's always a problem and responsiveness can be slower than desired. Most people we knew with their own rentals decided to manage it themselves. At the end of the day, we were the ones who cared about our property the most. The big benefit was "saving" on property management fees and that we had come control on how it gets managed. Here were our costs...

• Repairs and Accountability. We were lucky we had people to call. But managing from an ocean away, there's no guarantee on the quality and timeliness of making the repair.

• Slightly on edge. We knew anything could happen at anytime. Whenever we had an issue and a notice from the tenants, our stomachs sank because we knew it had to be dealt with immediately. In our experience, we had to deal with an air conditioning issue and a broken washer and dryer unit (during the pandemic).

• Additional Administration. We had to make sure we were compliant with Hawaii income tax and making sure that General Excise Taxes were paid on their respective timelines. We also relied on Avail.co to generate a lease, advertise, and assist with background checks.

  
  

There are pros and cons to both approaches. Be honest with yourself and be prepared to mitigate the risks.

Tax Professional Help

From Real Estate Agents, to Lawyers, and Loan Officers, there's a network of people to build for successful real estate investing. But I'll provide a few insights on Taxes to consider and how a Tax Professional can help.

• You own a Small Business! With that, you're afforded some of the benefits of running a small business - Namely, deductible expenses.

• Deductible Expenses. Advertising, repairs and maintenance, Property Manager fees, replacement appliances, mortgage interest, and homeowners insurance on that rental property are all deductible!

• Depreciation. This is a paper expense you record on your Schedule E. For a residential rental, the cost of buying the home is depreciable over 27.5 years.

• Tax Planning. Let your Tax Professional know you have a rental. Those activities are part of Schedule E of your Tax Return. If you plan on selling, know that depreciation over the time of the rental will be recovered and is counted as income.

  
  

Know that having a rental property (or several) will add complexity to your tax return that a professional will be more familiar with. Invest the time and money to working with one.

Conclusion

Real estate is truly a worthy investment to add to your portfolio, but it does require assuming responsibility to maintain a capital asset and truly take care of tenants. You're essentially in the business of providing a home.

What's been your experience?

What lessons would you like to share?

What were your successes and "failures"?