Real Estate is One of Our Key Money Milestones for Financial Freedom

I love my tax advantaged investment programs, but I also love the idea of cash-flow and diversification. When we reached the point that we had fully funded an emergency fund we came to an impasse regarding what we should do with any additional savings we will be able to make. Buy a new car, maybe go on a luxury vacation? If you thought for a second that we chose either of those options, you don’t know us yet! We sat down and reviewed all of the possible places that we could place our money and produce income, and settled on the best short-term option with hopefully the lowest amount of time input being Real Estate. We moved Real Estate to the top of the list from a handful of those sayings that you hear over and over from people who seemingly know better, or convince me they know better than me. (Looking at you Graham Stefan - PS we want to be friends). Those handful of sayings include:

• One along the lines of the saying that land is the only asset that they aren’t making any more of

• Real Estate builds wealth more consistently than any other Asset class

• The interest rate will never be better than it is right now, money is basically free

As simple of thoughts as those are, I just zoomed out and reviewed the trajectory of the US population. We aren’t making any more land, but in the last 30 years the US population has nearly doubled. The 2020 census has shown that the US population growth rate has slowed, but there will still be growth into my retirement years. I am not an Economist, but this charting and the consistent message that Real Estate is the best way to build wealth was enough to convince us to take the plunge and commit to researching how we will build a portfolio.

We owned our home(with a mortgage) when we started our research. We were reviewing a number of options which included(our ranking below)

1. Purchase a new home locally and rent out our current home

   • The suburb that we live in had substantially appreciated in the last few years and even more so during the pandemic. We love our area and had no real thought that we would move anytime soon or ever. We have been looking in our area forever, and the low interest rate really added gas to that fire. We figured that as first time landlords we would prefer to be able to address issues quickly and be able to stop by as soon as possible. Our home appreciation over the years translated into the current mindset that we bought on sale and can now reap the rewards of that decision with a cash on cash return that is in the range that we were looking to realize.

2. Purchase a vacation rental

   • We love the idea of being able to plant our money in a vacation rental that may or may not appreciate, but could produce cash flow and provide us with a place to vacation when not in use. This was second because as first time landlords, we were not sure how we felt about managing remotely.

3. Purchase an out-of-state long term rental

   • This was purely a cashflow play. We have been researching tertiary markets of major cities where the there is incongruence between rental costs and home costs. We could potentially pickup 2 cashflow producing homes for the price of one in our market. The upside here would be the possibility of higher appreciation as well as a great cash on cash return. Our hesitancy here is the same as the vacation rental. We were not sure we would want to start our foray into real estate remotely. Additionally, we do not know the markets very well and do not want to deal with bad tenants.

4. Purchase a low-income rental in the City of which we are a suburb

   • This is the same idea as option 3, but in lower cost areas in our own city. If played correctly there is a substantial appreciation upside, good cash flow and the ability to get to the property easily if needed. The primary downside is we are familiar with the areas where lower cost homes are available and have been warned by locals about why not to purchase in these areas.

5. Purchase land to rent out as a camp location

   • This option is attractive in that land can be purchased for a fantastic price. The land can be rented out for short term rentals and camping via airbnb or hipcamp, and should be low effort to maintain. The difficulty here is finding land that works for our intended use. We would love something that has a nice view and/or near water for that ideal camping experience. We are finding that these types of properties are very much unicorns or are too far away. The ideal property would be within 3 hours of a major metro so we can attract and market to city dwellers looking to get away.

We settled on option 1 when a house came up for sale in our area that checked nearly all of our boxes. We managed to secure the home without a long drawn out negotiation and were able to get our current home rented out quickly, with good cash flow over our mortgage, with what seemingly will be great tenants. As long as rental prices in our area maintain their levels, we hope to hold the property as a long term source of income.