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Chuck B.
  • Investor
  • Louisville, KY
237
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271
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Dear landlord pros... please evaluate my plan so far.

Chuck B.
  • Investor
  • Louisville, KY
Posted Oct 6 2011, 23:28

Dear Old Pros,

I'd love your critique of my situation and plan if you can spare the time. I'll lay it all out there in the hope that some folks might have some useful insights or advice.

I've been an "amateur" investor for most of my adult life, typically only having one or two rentals, with one unit being part of a duplex that I resided in. I live in Louisville, Kentucky, a city noteworthy for inexpensive real estate (and cost of living in general). As an aside, it's a very fine city and I highly recommend it to anyone. Especially foodies.

I sold my last rental (a duplex) just before the crash/recession (lucky me) and stayed out due to how frothy the market was. At that time and to this day I was living in a duplex as well and renting out the top floor. About 18 months ago my family convinced me to get back in as they had started buying foreclosures and had moved into Section-8 rentals. I was very dubious about this, having heard tons of horror stories. I'm pretty conservative and don't like drama so I wasn't sure how well I'd take to this sort of strategy. However, I did a lot of research and then bought my first foreclosure shortly thereafter, rehabbed it, and was able to rent it to a tenant I really like (and still have) about 60 days later. Since then I've done two more.

Here's my current section 8's and some pictures I posted on them at one time. These are all very nice houses, but in dubious areas, not full-on warzones, but not too far from warzones either. They were affordable, which is what I needed:

2000sqft 5/2 - purchased REO and rehabbed for a total of 44K. Rented at $900 monthly. This was my first one and I will most likely never buy another 2,000 sq foot rental, doesn't make a lot of sense for what I'm doing and just makes for more house to maintain.
www.whizbang.net/shawnee

1050sqft 3/1.5 - purchased REO and rehabbed for a total of 32K. Rented at $700 monthly. This was my 2nd deal.
www.whizbang.net/cokestreet

1350sqft 3/1.5 - purchased REO and rehabbed for a total of 33K. Rented at $825 a month starting next week. This is my latest deal.
www.whizbang.net/41street

I also currently reside in a giant old house that we have setup as a duplex, living on the first two floors and renting out the 3rd for $700 a month. This house is currently for sale for $399K, which I may or may not be able to get in the current market, but I'm trying.
www.whizbang.net/eastbroadway

Financially speaking, I bought and rehabbed the first two section 8's for cash and I have a 19K, 8 year loan on the 3rd one.

I want to get more heavily into rentals and out from under my current mortgage, so here's my thoughts...

I owe 155K on my house, the duplex, and have listed it for sale for $399. I built-in 20K haggle room on that price, and it's listed through a realtor, so about 20K would go for commission. It's been listed for 5 months, had a number of showings, but no offers yet. It's a pretty unique house and is zoned for offices as well, so I'm hoping the right live/work professional will come along and want it. It's also in a very desirable part of the city, if you like city living that is. If I can't sell it as it's listed now, at some point I'll not renew the realtor's contract and do a combo FSBO/MLS listing and offer a 3% buyer's agent commission and drop 30K off the price. Maybe that will move it, I don't know.

I have enough cash and short term investments to buy another section 8 outright, but I would never want to not have the cash cushion, so I'm not comfortable even contemplating that. I actually wish I'd borrowed more when buying these as I'd have more cash on hand and feel less worried about doing more deals right now.

My idea is this... If I can sell my primary residence, I'll take the equity (after taxes/commissions/fees/etc) of about 190K and try to buy four more rentals. We'd move into the first one, with an eye towards being there for maybe 18 to 24 months, while I got the other rentals purchased/rehabbed and up and running. At that time, we'd have enough rental income (and almost no debt) that I could make the move into full-time real estate and investing, starting with getting my realtor's license. (I've worked in online web site development and programming for 20 yrs, but it's getting a little old and doesn't pay as well as it used to.) And ultimately, move out of the rental we occupied and into something we'd enjoy being in more long term.

A couple of big IF's here though... IF I can sell this monster we live in. IF the rental market holds out (lots and lots of rentals coming onto the market here every day).

In the mean time I don't want to lose my momentum so I'm looking at buying a "#&@$ Burger", as a friend likes to call them... maybe a little 2/1 that wouldn't cost more than 20K purchase & rehab, that I could just put $4K (20%) down on and get rented out for $550 or $600 a month.

Any constructive criticism or thoughts on any of this is MUCH appreciated. I've spent the last week (since discovering BP) trying to read everything ever posted here, so I'm all ears. Ha!

If you've made it this far, thanks for reading my novella and don't hesitate to chime in with any advice or thoughts you have on any of this.

Best,
- Chuck

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