A modest advantage?

Question

Hello! I recently inherited a townhouse with 3 units that are all currently occupied with 70% equity in the property bringing in 5.6k in revenue a month that I've begun partly managing. I am relatively new to the real estate game and have begun reading books by BiggerPockets such as Real Estate Investing and How to Manage Rental Properties so I am opened to new information anywhere it may present itself.

I'm curious as to what I should look out for starting out as do aspire to gain more properties (currently, reading into the BRRRR method) and how should I utilize my current property to do this? What should I look out for when expanding? Strategies from experience investors for my current situation? Open to learning and stepping out of my comfort zone. :)

Currently, I am a finance major and specialized in equity analytics and statistical finance. I'm about to graduate so I do have a general understanding of types of debt instruments, discount rates, and just about most financial terminology.

Ashish Acharya · Answer

@Erick Escalante, Congrats on inheriting a triplex with solid equity and strong monthly cash flow. From a tax perspective, there are a few important things to focus on as you get started, because the decisions you make now can affect how quickly you scale.

First, make sure you understand how basis works on inherited property. When you inherit real estate, the IRS gives you a step up in basis to fair market value as of the date of death. This is helpful because it resets your depreciation schedule, which gives you larger annual deductions and lowers your taxable income from the rentals.

Next, look into cost segregation once you are comfortable with rental operations. This can accelerate depreciation and create large tax deductions that you can use to offset rental income. If you plan to reinvest aggressively, this helps you keep more cash in your pocket to fund the next purchase.

As you start expanding, pay attention to entity structure. Many small landlords hold the first property in their personal name and then move future properties into an LLC for liability protection. The tax treatment does not change, but the legal protection does. Once you grow larger, you can decide whether a holding company or series structure makes sense.

Also, understand the difference between passive income and active participation. Your rental losses can offset your rental income, but they cannot offset W2 or investment income unless you qualify as a real estate professional or meet specific short term rental rules. This is important for long term planning.

Finally, if you ever want to trade up to larger properties, learn how a 1031 exchange works. It allows you to defer taxes when you sell a rental and reinvest into a new one. Many investors use this to grow their portfolio without paying capital gains tax each time they move into a bigger property.

You are already in a strong position with equity and cash flow. With a clear plan, this first property can be a powerful launch pad for scaling.

Good luck and happy to connect.

Drew Sygit · Answer

@Erick Escalante I'd protect that 70% equity!

Only tap it to improve those 3 properties - and only improve if health & safety issues or if it will correspondingly increase rents.

Do NOT improve the properties like you'd live in them - just, MAINTAIN TO THE NEIGHBORHOOD.

Many here will try to lead you into tapping the 70% equity for additional purchases.- Without knowing what you are doing, this could be a disaster that leads to you losing everything:(

Better to learn how to manage the 3 you have and IMPROVE operations to improve cashflow.

I you do want to buy another property, save up the money and buy it separately.

Proceed slowly, only fools rush in.

Alfath Ahmed · Answer

That's awesome, i would re-stabilize that asset and get the NOI higher so that you can refinance the property (if you want) and pull out cash. That will help fund your future brrrr deals. That's how i built a portfolio of $4M in the last 2 years.

Micah White · Answer

Hey Erick - you're asking the right questions!

Henry Clark · Answer

OP figure out what you have first.  1.  Post a copy of your lease on here and ask for input.  Or have an attorney look at it, that has dealt with this before.

2.  Have your insurance reviewed by a different company. 3.  Do a capex review.  Windows, doors, hvac, roof, sewer scoped, sidewalks level, gutters, foundations, etc

4.  As mentioned above get your Basis established for future purposes.

5.  Buyout the other 30%.   This will impede future collateralization deals.  6.  Don’t sale.   But have a realtor walk thru and make points.  Street appeal, rental rates, anything else they “See”.

Elealeh Fulmaran · Answer

Great starting point—70% equity and full occupancy give you real leverage. Two quick moves: tighten operations now (leases, rent roll, expenses, reserves for CapEx), and talk to a lender about a conservative cash‑out or HELOC so you can tap some equity without choking cash flow.

Are your leases month‑to‑month or fixed term, and do you have a clear handle on monthly expenses yet (taxes, insurance, utilities, maintenance)?

Erick Escalante · Answer

The terms of the leases are LT (1-Year), at the moment I handle the CFs of the property, for the most part I have 5% on vacancy, 5% on CapEx, and 24% for tax provisions. I have not touched the equity, and both the kitchen and bathrooms have already been newly refurbished within the past year. Both home insurance and property taxes are factored in escrow of the mortgage payment. For the most part, my operating margin is 47%, while net income is about 20%.

Peter Mckernan · Answer

I would look at the BRRRR option once you run through the numbers with a few lenders on refi.. You want another professional working with you as a real estate professional that can give you insight on numbers and being able to BRRRR out of the deal you have now and go put the equity to use on another one to get another solid return, then push to get another BRRRR done on that deal that you will buy. This is just a rinse and repeat method as long as you have the reserves, the funds to fix up the deals and the ability to pick a deal that is actually a deal.

Erick Escalante · Answer

Thank you! I do have some cash saved up and I would like to prioritize cash reserves for a new property and maybe a bit equity from the property (~50k) so I'll do a lot of calculations for this approach.

Erick Escalante · Answer

Thank you! I'll look more into it!

A modest advantage?

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