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Baron Wheeler
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Help with next steps from new Colorado Springs area investor

Baron Wheeler
Posted Apr 14 2024, 09:09

My wife and I are newer to investing. We have had 2 long term rentals. 1 when we were in our early 20’s and got hurt a little during the 2008 down turn and sold it. Our current rental was our primary that we held onto to rent and moved into a new primary.

Both of our houses are in Teller county just outside of Colorado Springs. Our rental is paid for and has rental income of $2200 month and our primary has a mortgage of $1800 so we are currently living for free basically.

we have a credit line on our rental for $275k and recently got a letter from our mortgage company offering a cash out refi on our primary of approx $300k and still be able to keep our current interest rate on the remaining balance of the mortgage which is mid 3 %.

We are trying to grow our rentals and struggling to figure out the best way to do that. We currently do not have much money in saving due to recently rehabbing both of our houses. (We were planning to move back to our rental and rent our primary due to higher rents so started to rehab the primary then found out insurance would not insure us due to the high fire risks if we changed so ended up rehabbing both houses and burned the savings).

Our dilema is we don’t want to sell either of our current houses due to excellent locations and appreciation potential but want to progress with more rentals. Our current rental was purchased for roughly $340k 7 years ago and is worth in the mid $500’s now and is paid off, and our primary was purchased for $430k 4 years ago and valued low to mid $600s and we owe $180k.

Option1 we are considering are a fix and flip to provide cash for a down payment for a long term rental to allow the rent to cover the mortgage and at least break even. Might take a couple fix and flips to get enough cash to provide the necessary down payment for that. (We have fixed up 3 houses now and primaries not fix and flips and really enjoyed it) my job also works 1/2 the year so I have plenty of free time for rehabs.

Option 2, just purchasing a long term rental with the cash out but this will produce a negative cash flow due to the cost to rent in the springs area and $0 down. We make good money at our jobs and could afford the payments due to our primary being covered by the first rental. And with the appreciation in the springs area we should be able to hold the property and let appreciation do its thing and refinance in the future to provide cash flow then.

option 3, sell our primary and pay cash for a new primary which will free up the profits from our rental to use toward another rental and between both rents will easily cover a mortgage payment. Our concern with this is that our current primary is across from the best school in our area on a cul-de-sac lot and we feel it will continue to grow at a high rate and don’t want to miss out on that. 

Last option, moving to Houston where houses are cheaper but don’t seem to appreciate as well, taxes and insurance seem higher and cut into the profits. We would sell both houses here and free up approx $850-$900k to invest in Houston.  I have a job offer that will make slightly more than I currently make and will provide housing for my family so no expenses there. We just hate Houston for living and lifestyle but can see that as a potential game changer for investing other than the high taxes and insurance and lack of appreciation compared to Colorado.

We are open to other ideas and ways to grow and appreciate any help and feedback possible. We have also found some meetups in the spring and plan to start attending them to learn and grow as well, sorry for the long post.

Edited to add our investing goals are to be able to live off of our rental portfolio in the next 12-15 years when our kids graduate, obviously the sooner the better but we understand it’s a long term game.

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Eric DeNardo
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  • Real Estate Agent
  • Denver
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Eric DeNardo
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  • Real Estate Agent
  • Denver
Replied Apr 14 2024, 17:51

@Baron Wheeler,

Have you considered house hacking? Buying another primary residence, rent our your current home, and then find a place with a walk-out basement where you can rent that to someone else so that you can save more for your next investment.  

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Baron Wheeler
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Baron Wheeler
Replied Apr 15 2024, 03:24

We have considered house hacking but have not found any good options at this point in our price range. We will continue to look for houses that would offer that as an option though.

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Brian Bohrer
  • Real Estate Agent
  • Colorado Springs, CO
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Brian Bohrer
  • Real Estate Agent
  • Colorado Springs, CO
Replied Apr 15 2024, 08:28

Hello @Baron Wheeler,

It sounds like you have a great foundation to start out with to continue your investment journey!  Living for free is essentially the first great achievement to the path of financial independence and you have already done that!! You should be proud of this as most investors (including myself) have not achieved this goal yet!  

In my opinion Option 1 could be a bit risky in today's environment as we are not sure if prices have hit the bottom yet, there are positive signs in the CoS market that point to price appreciation in the future, but there is a good chance the interest rates are not coming down for a while, which will have a negative impact on home values.  Plus if you do not have a well established team to get your project finished up before the end of the summer selling season, you may not get the return you were expecting as holding costs and declining values are eating profits.

Option 2 sounds like a safer bet, but yes you will have to cover some expenses and may have to carry the property with your own cash until rent prices appreciate enough over the years to cover your mortgage payments.  You would still want to be sure to buy a nice home in a good area to ensure that you are not coming out of pocket for years to come, and will attract quality tenants.

Option 3 could work, but I agree that maybe you wouldn't want to give up that prime location and that sweet low interest rate!  

My suggestion is that, if you are willing to move around the area then maybe you should consider the strategy that my wife and I are currently implementing. We are buying a new primary residence every year with a low 3.5% - 5% down payment and then keeping the home as a rental when we move on the next year. AND, an even more powerful strategy to implement in today's market is to target homes for sale that have a FHA, VA or USDA loan because these loans are ASSUMABLE!

You can, just as we did last November on our most recent home purchase, buy a home today with a 2%-5% interest rate!  We are saving over $1,100 per month on our mortgage payment and banking over $350 in additional monthly debt paydown by taking over a 3% loan originated in 2021 compared to a 7% rate loan if we took out one today!  

Depending on the situation of the seller, you may have to come up with a down payment to cover the sellers earned equity, but many homes have dropped in value since mid 2022 and sellers are being left with very minimal equity depending on how much they put down when they purchased.  I have a blog post where I talk about the power of buying via an assumable loan and I think this the only way to buy a profitable investment in today's market conditions!

https://www.biggerpockets.com/forums/922/topics/1175338-maxi...

If you need some help finding an assumable loan target in El Paso or Teller County please reach out I would love to share my knowledge with you!  I wish you the best on your journey and look forward to hearing about your next steps!

Take Care,

Brian Bohrer - Homesin719.com