Wait and see or keep on going?

14 Replies

Hello BP!!

After 4 months of reading everything I could on this site, in March I finally took the plunge and bought my first rental property in Baltimore Md. After getting the property leased up( using property manager) with section 8 tenants in mid April, I purchased another property in the beginning of May and am just finishing up the drawn out section 8 process (found the tenant, inspection complete. Just waiting on the rent amount to come back from the housing authority.)

I'd definitely say that I have the itch and am ready to start looking for my third property... However others in my family and friend circle(who are more conservative in their investing) are advising me against it.

I'd like to get BP opinions/ experience. Have you any advice for a newish investor who is torn between playing it safe(waiting for a certain period before acquiring any more) or continuing until I reach my goal.

Below is some info so that you might get a better understanding of my goals and where I am coming from.

My goal: I am currently one full year out of college working as a marine engineer aboard a ship. I am away from home for half the year :( In 10 years I'd like 20 properties or enough passive income so that I can stay home full time and possibly start a family. I'd still work ( become a real estate agent or continuing in the field of engineering), however id like a safety net!

Current properties

#1) 2 bed 1 bath totally rehabbed (new mechanicals and 4 year old roof)

Purchase price: 55k

Rent: 1174

50% rule cashflow: 284 per month

#2 4 bed 2 bath totally rehabbed ( new hvac, appliances, and mechanicals)

Purchase price: 95k

Projected rent: 1700

50% rule cashflow: 250 per month

Both properties are financed through conventional 30 year loans. According to my lender i qualify for one more conventional loan up to 95k until I get a raise or show 2 years w2 income on current properties. If I were to purchase another property between 70k-100k with (20% down payment and closing costs), I'd only have about $12,000 in reserves for three properties.

Thank you for reading what seems to me a long, confusing and boring post! However, I would very much appreciate some thoughts on weather I should push forward or hold steady for the time being. Any experience, advice, warnings and the like will be greatly received!

I suppose it depends on your risk tolerance and your resources. There will be naysayers and those who say "go for it" around every corner. Do your due diligence and know thyself. Since you have a lender who is ready to go on a third conventional loan, you are probably in good shape as long as the properties are cash flowing well and not in need of any major repairs. Make sure you have a property management company that you can really trust to do a good job and prepare a contingency plan if they start to falter. Also, make sure you have adequate insurance for the buildings and for liability, including an umbrella policy. In addition, maintain a personal emergency fund and an investment emergency fund. Good Luck!

@Garrett Fulton congratulations! I agree with what @Marcia Maynard said. You know inside if you should sit tight for a short time or continue to go for it with the 3rd property. I don't know where you are investing in Baltimore but I would also say think of your exit strategies always. I know when I buy my first rental in B'more city it will most likely ALWAYS be a rental and my exit will be to sell to a fellow buy -n-hold type if I need to get out of it. If you already have one (or two) of these, then hold out for one that could potentially go to a retail buyer as well as a holding investor.

Depending on whether you are buying in good areas, I say keep on going. Are your from Maryland? If you know your market then don't listen to the naysayers. Your numbers look like solid positive cash flow to me.

I invest out of state, friends and family think I'm nuts but I'm confident in what I am doing. My goal happens to be the same as yours, 20 properties in 10 years. You won't get there by sitting on the sidelines. I also happen to have the same debt to income ratio problem as you due to the 2 years of landlording experience needed to count your rental income, pretty ridiculous when you use a professional property manager.

I'm a newbie as well, so beware my advice. I don't really know what I'm doing either. My concern would be over-leveraging. If both properties go vacant, you could be hurting in short order, between the mortgage and Baltimore's insane property taxes. Jason Hull discusses this in podcast 52 I think.

This pitfall is made worse if you are at sea. You could be somewhere in between ports, unable to respond to a crisis.

That being said, these interest rates are enticing.

This post has been removed.

I think the answer is simple, wait . . . for a KILLER deal. Don't wait to start looking again, but wait for a great deal. Don't do a deal just to do a deal. The best deals come to those that have the patience to wait for them.

If you simply want more properties that is a ego driven goal. What you really want is profitable deals. If you spend all your resources on a "good" deal you won't have them available when the "Great" deal comes along.

Regarding your $12,000 reserve. That number should grow quickly becuase the 50% rule assumes many of those expenses will not come in the first year. You should be saving every month to build that reserve from your cash flow. Just because your expenses are not 50% every month does not mean you get to spend that money. It means you get to put it away into reserves.

Good luck - Ned

@Andy Gross

At this point the bank has determined to lend to Garrett with the belief that he can cover his mortgages with his employment income alone, no help from his rental income needed. So including rental income he should be in pretty good shape to handle a vacancy or two.

Ned Carry has a good point, that two year waiting period gives you some forced waiting time that you might as well spend being patient looking for a great deal. I am also considering flipping one during this time to get a little more cash on hand for when my debt to income ratio jumps up. My model would be to sell the property as a turnkey so I can collect rent until it sells.

@Garrett Fulton

My husband is active duty navy and your goal is our goal. We have five houses that we have picked up in the last 2.5 years. We personally have "pushed" our amount qualified every year. My first goal is 10 and my second goal is 17 houses. In 15 years we want enough passive income that my husbands retirement pension (if it exists) and our cash flow allows him to retire and be my handyman :)

I personally do not think that low interest rates and "current" depressed house prices will last long term. As we are only buy and hold investors and currently use the mls. We want to pick up these amazing deals as quickly as possible. I believe sooner than later our business model will no longer work and will have to evolve into something I am not sure of yet.

If you feel that you have a safe secure job and are willing to push the envelope than I would buy one more house. *Than* you are truly maxed out. None of my conservative family agrees but it has worked for us.

Another question: Have you bought your personal residence yet? You are qualified for the VA loan right. After you max out your investment you usually can buy a personal. (usually , due to personal having easier rules than a rental but talk to your mortgage broker). I would recommend you get roommates and rent out the rooms. That way you have another house building equity.

Good Luck!

@Garrett Fulton

Congrats!!! Keep going strong but keep your finances in place and make sure you have an emergency fund in place. I agree with Ned in that you should look for an even more profitable deal at this point. Your goal of 20 properties within 10 years is very attainable. I started purchasing properties in 04 and now have 28 properties. My passive income far exceeds my fixed expenses but retirement is not something I would consider because I love what I do.

Thank you all for the words of advice and encouragement. You have all given me many good anwsers and also some thoughts and questions that i must consider as i move forward! I have come to the conclusion, as @Ned Carey said so thoughtfully, that I will be activley waiting "for a KILLER deal". If that deal comes tomorrow, next month, or after the new year i want to be ready!

@Brant Richardson , great to hear that we have the same goals. Flipping a house would be a great plan to build more cash for future buy n holds. I am that turnkey buyer that you describe. Due to my one month on, one month off work schedule, i am lucky to close on a property before I need to go back to work. This is why my strategy has been to buy homes that need no work.

@Marcia Maynard brought up a great point about insurance that I have been on the fence about.

I currently do not own umbrella insurance. Am i crazy? My thinking was that at this point in my life I have no real assets other than a vehicle, and 20% equity into each properties.

@Elizabeth C. , I am currently not a home owner. I sheepishly admit that I live with my original roommates (parents) due to the fact that I am gone half the year. This will undoubtedly change as my SO is pushing for us to rent an apartment. I will get to see what its like being a tenant and a landlord :) As far as the VA loan is concerned, id need to serve six years before i am eligible as I am only in the reserves. My main job is in the private shipping industry.

@Brant Richardson , good point. Banks aren't what they are used to be, and if his banker is comfortable, he's probably in good shape.

I'm curious where you are you getting a $1200 Sec8 rent for a 2BDR on a $55K house? Great deal, congrats!

I know S8 rents for my areas pretty well. $1200 for a 2BDR is VERY good for such a low value purchase price.

Originally posted by @Garrett Fulton :
Hello BP!!

After 4 months of reading everything I could on this site, in March I finally took the plunge and bought my first rental property in Baltimore Md. After getting the property leased up( using property manager) with section 8 tenants in mid April, I purchased another property in the beginning of May and am just finishing up the drawn out section 8 process (found the tenant, inspection complete. Just waiting on the rent amount to come back from the housing authority.)

I'd definitely say that I have the itch and am ready to start looking for my third property... However others in my family and friend circle(who are more conservative in their investing) are advising me against it.

I'd like to get BP opinions/ experience. Have you any advice for a newish investor who is torn between playing it safe(waiting for a certain period before acquiring any more) or continuing until I reach my goal.

Below is some info so that you might get a better understanding of my goals and where I am coming from.

My goal: I am currently one full year out of college working as a marine engineer aboard a ship. I am away from home for half the year :( In 10 years I'd like 20 properties or enough passive income so that I can stay home full time and possibly start a family. I'd still work ( become a real estate agent or continuing in the field of engineering), however id like a safety net!

Current properties

#1) 2 bed 1 bath totally rehabbed (new mechanicals and 4 year old roof)

Purchase price: 55k

Rent: 1174

50% rule cashflow: 284 per month

#2 4 bed 2 bath totally rehabbed ( new hvac, appliances, and mechanicals)

Purchase price: 95k

Projected rent: 1700

50% rule cashflow: 250 per month

Both properties are financed through conventional 30 year loans. According to my lender i qualify for one more conventional loan up to 95k until I get a raise or show 2 years w2 income on current properties. If I were to purchase another property between 70k-100k with (20% down payment and closing costs), I'd only have about $12,000 in reserves for three properties.

Thank you for reading what seems to me a long, confusing and boring post! However, I would very much appreciate some thoughts on weather I should push forward or hold steady for the time being. Any experience, advice, warnings and the like will be greatly received!

Hi Garrett,

When I first started investing I built a very large portfolio in a short time.

I was only buying for quantity and for the purpose of being able to brag how I own a large property portfolio.

It cost me hundreds of thousands of $$$ in opportunity costs as great deals kept crossing my inbox but I didn't have the capacity to purchase them.

My word of advice would be to stay patient and wait for the screamer deal to come along.

They always do.

Just my opinion.

Thanks

@Garrett Fulton First thank you for serving. Next I second @Ned Carey . You have 2 very good deals, now look for the great one. put the word out with your friends around base, your family, etc. As to umbrella insurance I would look into it. It is really very inexpensive and will help you sleep at night. Be sure to send a colleague request to Ned he is very experienced and the time will come when you have a very important question or need advice and he will probably be able to help you in 2 minutes. Good luck in your investing.

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