Real Estate Investing: A Real Life Story

Real estate investing can be a vehicle for leveraging your money to slowly build assets for retirement. A good friend of mine, Dan M, who is a certified public accountant in Los Angeles County, has always been careful with his money and he recently invested in a home in Cypress, Texas, a suburb of Houston.

I spoke with him about his real estate investment plan.

Q: Dan, why did you decide to invest in residential real estate?

A: I see it as one way to save for my and my wife's retirement.

Q: You told me you went through the Marshall Reddick organization to learn about investing. How did you first find out about them?

A: They offered a course through the adult education program at Pasadena City College. It showed me how they educate people on real estate buying opportunities.

Q: How did you decide to invest in the Houston metropolitan area?

A: The house I purchased was one of the properties offered at a special buying event. The area has a good record of growth and appreciation. Plus, it's in the Gulf Opportunities Zone so it allows for what is called "bonus depreciation" - a form of a tax write off.

Q: What makes Houston a good investment market?

A: In any city you want to look for: a strong rental market, diversification of industry, a growing population with a growing economy, favorable laws and taxes that are favorable to landlords. You also want to invest, if possible, in a "yuppie" neighborhood which is one that has a good school district.

Q: What are your real estate investment goals?

A: I want to purchase 1 to 2 homes per year for the next 5 years. I plan to hold all the properties long term. The house I currently own in Cypress is a 3 bedroom, 2 bath. I bought it for $147,000 and expect to hold it for about 10 years with a 3% to 5% appreciation per year. I'll have a positive cash flow in about 3 years.

My downpayment came from money I had already saved it. My personal rule is if I don't have the money in savings, then I won't go into debt to finance the downpayment.

I have two loans on the property. One is a first mortgage with a rate of 7% and there is a second with a 10% interest rate. That's what the broker suggested to me based on his calculations and where the market was headed.

Q: What is the value of a real estate investment club?

A: Tremendous value. I wouldn’t be doing it if I wasn’t working with a network I felt I couldn’t trust, had experience and had connections around the country. It’s too difficult on your own to interview property managers, real estate agents and others involved in the process.
My wife trusted me to make the decision.

I did some personal research on the Internet to find out the economy of Houston. Forbes magazine has an annual investment guide and in their January issue I came across a statement where they predicted Texas would have strong growth in the near future. Whereas many places in the country won't have the same growth. So it was a confirmation to me of potential growth.
I also talked to the real estate broker who manages in the neighborhood.

Cypress is 77 miles from Galveston so it's inland enough to diminish hurricane threats. Taxes are almost 2.5% annually which is higher than California.

Research you should do on your own is look at 3 costs before you invest: property management fees, insurance costs, and property tax costs. Sometimes you can get off Internet other times you can’t. That's where a helpful broker who knows the area can assist you.

Consult with your tax advisor before you decide to invest.


editor: The picture of Houston came online from photohome.com and the map of Cypress came online from Cy-Fair College, Barker Cypress Campus.