Confused on how to reach my goals
Hi,
Although I am not new to real estate investing, I do find I'm at a loss of where to go from here to reach my financial goals.
I own two SFH, one in PA and one in AL which are mortgage free and yield around $1800 CF a month. According to zillow, they are value at $220K and $100K.
I am confused on where to go from here, I'm feeling that multi families are the way to go, I would love to reach $15-20K a month CF somehow, would appreciate any strategy advice or direction on how to reach this with what I already have.
Thanks!
"Mortgage free" is the reason you are having trouble getting there.
Based on your numbers, you are getting a 6.75% return on your equity. I regularly see 20%+ returns in single family space. If you could only improve your returns to 20%, that would boost your monthly cashflow to $5,300 per month. To do that would require taking on a mortgage and buying more SF rent properties.
By having more houses, you also have more depreciation to shelter that income from taxes. By having more houses, you also get a multiplier effect from appreciation. By having more houses you get more loan paydown (paid down by the tenant).
I would suggest better defining your goals, and then breaking them down into smaller, achievable steps with a deadline. (A common mnemonic is that your goals need to be SMART: Specific, Measurable, Achievable, Relevant, and Time-Bound).
Is $15k/mo in cash flow your goal, or is owning several multifamily properties your goal? Either one is okay. Just decide and define.
If $15k/mo is your goal, you need an additional $13,200 cash flow per month. But by when? Let's say for argument's sake you want to achieve this goal within 10 years. That means you'd need to add about $1300/mo in cash flow to your real estate portfolio each year for the next decade.
Now break that down and define how you are going to do it. This of course will depend on your financial situation (if you have a ton of cash and great credit to begin with, it's obviously much easier).
In year one, for example, you might plan to refinance your existing properties at a relatively safe 60% LTV, which would give you $192k to either buy a $192k property free and clear, or buy a $480k property with 40% down. You can adjust the LTV to suit your risk tolerance, then figure out how these options would impact your cash flow.
From there, come up with a strategy for year two, three, and so on.
Thank you for your replies.
I think I see what you're saying. Better to have houses with debt then to have 2 without, that's how I grow over time, time being key factor...
How do you know when to sell or hold and take a loan out against the properties you own?
I think it comes down to best use of capital. I like putting HELOC's on my rentals, and then I have a line of credit I can use to move on something better.