BiggerPockets

My methodology is very very conservative. A lot more conservative than many here. Most are using other peoples money, and taking equity out of houses to buy another, etc. I just really don't want to get to a point where i have 20 rental properties, all with lots of debt - if each flowed $200 a month, that would be $4,000 a month and thats great! But I couldn't imagine the headaches.

I own my own business, and am planning on paying off my house before I get the next. The next house I hope I will be able to get for $80k or so with 20k built in equity and pay it off like mad over the course of a year or 2. This way I could have $800 or so cash flow and live house payment free. Then keep doing it until my residuals are met. This should take about 5-6 properties and I would be done in maybe 10 years.

This is my exit strategy. If my own business dries up, I don't want to have massive amounts of debt to the point my back breaks. I also want to get to FI the quickest way possible. That means to me, living simply and shoveling as much green into real estate, one house at a time.

Is anyone tracking with me here? Who else is doing this? Who thinks this is smart? Who thinks this is ridiculous?

This is an excellent strategy for being able to sleep well at night and not getting overextended, which can lead to losing everything.

By investing so very conservatively you will probably never be affected by business cycles.

This is how I invest at present.

I am very happy to know that I am not alone! My main issue with this is that it seems very, very, very inactive. As if I am not doing anything. I am buckling down though. At 28 years old, if all goes well (knock on wood!) I should be FI in the next decade. That is if I stay on track.

Jason Schmidt,
Are you buying each property under it's own LLC. That would at least separate and protect your assests.
I personally do not wish to get attatched to any property and keep in mind that I will not own it for more than 2 years at the most.
This of course depends on the market and if I the property creates a nice cash flow.

I like the idea of being debt free, I've been so since the early '90s. Although as another poster pointed out, at your age you could afford to go a bit more aggressive.

I was always an opportunistic buyer and even though I was conservative financially and always tried to keep from getting overextended I did NOT let that keep from buying when a TRUE DEAL came along.

The only time my ratios got really out of whack was when I fell into a deal to buy 3 at one time (within a month of buying another rehab) but I got the three at about FIFTY PERCENT OF FMV. My ratios were screwed up for a couple of months (and my sleep pattern) but within 45 days I had sold one and gotten all my money out of it and gotten back to where I was actively looking again.

frank

Jason,

In reading the other responses to your question it really comes down to what you are comfortable with. The main objective to investing is to have your money working for you, right.

With that in mind, put down 100K earning 6% for 5 years (keep in mind that you had the $100K cash to invest).

Then let's say you leverage that same $100K into $1 million in properies and you were getting the same 6% return, not to mention the tax benefits, appreciation, etc..... Now see what the difference in income after 5 years. It is amazing!

i agree with you all to an extent. The problem is that the appreciation is not liquid - ie i cannot live off of it. Appreciation around here tends to be slow ... rather up to about 3% from what I hear max generally. Here is what I see:

if i get $1m in properties for my $100k, say, that is at about 10 properties then I have to deal with interest, multiple tenants, I need to be more "savvy" for investing sake and more "active". It also means that while 3% of 1m is $30k a year, it isn't something I can touch, so to speak. If I can buy outright 2 properties for just a bit more, then I don't have to be as involved, don't have to really be "on the look out" all the time for the best deals, and it would produce cash right now. The liability is severly limited because I don't have to worry about if 2 or 3 tenants skip out. if 3 skip out, that means that I would have to pay carrying costs of $3k a month or so.

I must say, I do see the benefit of buying more at once, but it just seems like it will be taking more time out of my life to run my own business.

I'm a bit of a noob still, but here's my take.

I also find myself doing the same thing, Jason. People have told me it's a terrible idea (not just bad...LOL), but those people aren't any better off than I, so I take their advice with a grain of salt.

I've also been trying to pay off my first place (primary residence), and I think I was within 12 months...but I lost my job today. I haven't been giving all my money to the bank though; I've been saving it where I can access it, just in case something like job loss reared it's ugly head. So at the moment, my progress has been halted, but it could be worse! I could have the place 75% paid off with NO savings for this little rainy day.

Also, the value of this place has since gone down to about the point that I have it paid to. So i could get out from under it and 'only' lose the equity - which for me is about 20k now. If you bought 10 places like you said in your example...man, that could be a bad situation, I would think. Magnified losses. Betting on appreciation in this market...well, I'm not holding my breath. I think it's gonna be a WHILE.

I like the idea of having the place free and clear - a bit of stability when everything else seems to be falling apart. And if it was paid off and I was inclined to get a room mate, they would pretty much cover all my monthly expenses. To get into that situation before 30 would be fine with me. Job loss wouldn't be as much of an issue as it is right now, that's for sure.

i was actually just thinking about that - should i keep my money in the bank and pay off in one lump sum or pay as i go? As it turns out, if I pay as I go, I can save $2,500 in interest assuming it takes a year to pay off. Keep in mind that includes putting down a lump sum of $40k now and keeping 20k in reserve cash at all times.

We started paying as we went but then we decided it was better to save it up in a high-interest-baring savings account and for every $5000 we'd save, we put it into a 3-month CD. When we finally had enough we sent one wire to the bank and poof...free and clear.

Once we made the decision to pay all the properties off ASAP it has been easy to save the money because we have a very tangible goal and it is taking much less time than expected. We look at expenditures as, "Should we spend $85 for a mediocre dinner out or put it towards the mortgage??" We almost always decide to go to happy hour for $10 and put $75 to the mortgage. Hey, you've got to live a little, too!