REAL Exclusive Magazine

Middle Age Real Estate Investing

By Jeff Riddell

Last article we discussed real estate investing by young folks. But what if you are older and your time horizon shorter? Let’s discuss the 35 to 50 age bracket next—I’ll call it middle age.  Although many people are well into real estate investing by the time they are in this age bracket, let’s assume you are just getting started. If you’re 40, you likely have at least 25 years before retirement; probably more because I believe the days of retiring by 65 are numbered. The entry strategy for this age bracket depends of course on how much savings, discretionary income and other investments you have. Rental houses are still a good place to start, and the accumulation may be accelerated if you have funds that can be tapped or other investments that can be fully or partially liquidated.

If you can lay your hands on $50,000 for example, you may be able to start with a multifamily property. Economies of scale favor multifamily properties over single family houses. A four-plex usually requires less work than four single family houses and the per unit price of a multifamily property is usually lower; you will need to look harder to find four-plexes but they are out there.

Let’s assume you are 40 years old, have been working for 15 years and can manage the $75,000 down payment. This would allow you to buy a nice four-plex—around $300,000—with conservative 75% financing.  The higher the LTV (loan to value), the greater the cumulative return on equity is likely to be, but most people want a property where the rents will at least pay the mortgage and expenses so sharpen up your pencil to see how aggressive you want to be with financing.

There are a total of 15 years in the 35-50 age bracket, and fifteen years may be enough time to at least quadruple a $75,000 downpayment. Assuming a $300,000 four-plex appreciates five percent a year ($15,000), the annual return on the $75,000 downpayment should be about 15% after expenses.

If you could add about $25,000 to your real estate investment piggy bank each year between ages 35 and 50, you might be able to buy another four-plex every other year or so—or maybe even evolve out of four-plexes to larger multifamily properties. There are a lot of eight to sixteen unit apartment buildings around.

Rental properties can include residential condos of course. But speaking of condominiums, another approach to getting started is to target a “condo-ized” office building and buy a unit. If you are on your own and need one, you might even make it your office. After you buy the first unit, put the word out that you might be interested in buying more units in the building; encourage other owners to call you first before they list with a real estate broker. I have known people who have ended up owning an entire office building—a piece at a time—by this approach.  It could take years, but in my judgment, real estate investing should be for the long haul anyway.

Next article, we’ll talk about baby boomers.

Jefferson F. Riddell is a Florida Board Certified Real Estate attorney with thirty-five years of experience assisting people with a variety of residential and commercial real estate matters. U.S. 1031 Exchange Services, Inc is a 1031 exchange qualified intermediary (QI) and a member of the Federation of Exchange Accommodators (FEA). As President of U.S. 1031 Exchange services Jeff has been facilitating 1031 exchanges for more than twenty years. Jeff has been awarded the Certified Exchange Specialist (CES) certification. Jeff may be reached at 941-366-1300 or via email at jeff@us1031.com. www.us1031.com.