getting started and making it grow

11 Replies

hey my name is mike I am 30 years old and after years of thinking about investing in real estate I am finally ready to do it. I just got married 2 months ago, i have 3 kids(all of them with my wife). Currently rent a townhouse to my mom worth about 200k(no mortgage $2k in taxes) for $700/month with $190 HOA and i know i could rent it for way more but its my mom. My wife and I also own our own home worth $335k(no mortgage) with $4k a year in taxes. We have no car payments and shouldn't need a new vehicle for 4 or 5 years. I will make roughly $38k this year at my job and my wife stays home with the kids.

I recently got a settlement for $700k, opened up a LLC and put my rental property in it. I recently purchased my 2nd townhouse for my in laws (paid $180k cash) but I plan on refinancing and having a $80k mortgage(15 years). The in laws will be paying $1230/month with $229 HOA. I plan on using the other $100k as a down payment on my 3rd rental for my brother in law and his family. I know i am going to get some bad feedback on renting to family members but I think it will work out for me. Also looking to spend around $170k(probably less) on the townhouse so i will have a $70k mortgage and they will be paying around $1100/month with roughly $150 HOA.

All the rent i get will go towards the mortgages in hope of paying them off ASAP. I am in this for the long run and hopefully in 10 years i can focus specifically on my rental business(hopefully have 10 rentals in 10 years). I know i can get just as much rent from a $100k house but i want you get places in the $150k range to hopefully attract better tenants.  I am willing to do whatever it takes to be successful so I am starting here.I feel like I'm rambling on and maybe gave to much info or maybe not enough. I would appreciate any advice/feedback I can get. 

@Mike O.  

welcome to the site. Sounds like you got yourself a big chunk to get your RE investment career started. Spend it wisely. I would not focus on paying the mortgages off too fast. If you can qualify for 30yr resi mortgages that is going to be the cheapest money you will ever get.

I want you get them paid off asap so i can collect max cash flow sooner. I don't plan on using any money i make on myself and will just put the entire rent check towards the payment. I am hoping i can get around 2.9% interest on a 15 year conventional loan and it looks like the payment will be around $736/month with $229 HOA and will be getting $1230 /month rent. Instead of pocketing the $265 I will just pay $1000 towards the mortgage. I am also looking at a place right now $150k, putting $80k down and hopefully be getting around $1350/month with $250 HOA. At that point i will focus on those properties for the year and probably won't be purchasing anymore until next year. Thanks for any advice

@Mike O.  

Everyone has their own opinion. I personally would rather get $1 million worth of leveraged real estate at 20% (200k) than $200k fully paid off. While the cash flow "might be slightly lower", in the end it is so much more because your tenant have it all paid off!

That being said, welcome and good luck!

I need a $700k settlement lol

Im with   @Elizabeth Colegrove ... 

For me personally i have preferred the route of owning more real estate through leverage then owning it outright.  I have no issue owning them outright but there is a specific place and time in my portfolio plan i will do that.  

@Mike O.  To leverage or Not to leverage is less about what all of us think and maybe more about what outcome you are hoping for the the seed capital you intend to use for investing.  Good luck and take Care. 

-Sky Mikesell

@Sky Mikesell  

I totally agree! I plan on owning them outright. That being said I plan on the tenant paying it off, with my sweat equity being "managing" the property

Thanks again for all of your input I really appreciate it. Its my goal to own 10 properties free and clear in 10 years and to be able to quit my day job and focus on my properties. Obviously things could change and I could keep my day job and still grow my real estate investments.  I am really focusing on the townhouses in the $150k range in my area and i feel like if I stick with that I should have no problem reaching my goal. I have a great realtor helping me which makes a huge difference for me. I am knew to all of this so I don't want to make the mistake of buying to many properties and something going wrong and not being able to make the mortgage payments. But at the same time i just want to buy 10 properties and have someone start making the mortgage payments sooner than later. thanks again for your input it's greatly appreciated 

@Mike O.  

After reading your post, a few questions came to mind.

1) Is there a specific reason why you prefer townhouses over SFH? From what I have researched and heard on BP, townhomes seem to more likely than not have HOA fees associated with them. If you purchased SFH (with no HOA fees), then you would have that extra $150-$200/mo from HOA fees to go to increase your cash flow, save for repairs, etc.

2) Have you considered using some of the excess money (current going to pay down the mortgage) and putting it into an account for each property to cover repairs and eventual replacement of items? Obviously I don't know the state of your present properties. But, if part of your idea is for each property to be self sustaining, this might be something to consider.

3) Why did you use $180K in cash to outright pay off the 2nd rental in full? Was the plan to always use this 2nd property as a rental or did it turn into a rental? I ask these questions since I am confused as to why you put down $180k into the property and are now trying to take out $100k through a refi.

4) Besides your "10 properties free & clear in 10 years" goal, why are you choosing to pay down the properties with your own money in lieu of OPM? IMHO, if I was going to want to essentially quit my job in 10 years, I would want to secure keep some of my funds liquid to safeguard my family, as well as, ensure that I was able to successfully manage all of my properties without the need to reenter the workforce.

Hope this questions help us better assist you in realizing your dream! :)

I don't do real estate transactions without first consulting with my CPA/Financial Planner. Protect yourself from surprises.

Good Luck!

Thanks again for the responses.

Niki Lee i will answer your questions first.

1. When i was looking at single family homes in my area in the $150k price range there really wasn't anything worth getting. most of the homes were 25+ years old and if my opinion were not nice places. I was actually looking for a place for my brother in law but just couldn't find a decent place for him. I would love to not have HOA fees, especially when the companies around here are below average. It is nice to have all the lawn and snow taking care of but i feel the prices are a little high.

2. I do plan on putting a chunk of money into my business account incase of any repairs. I am fortunate enough that my mom pays for pretty much all the repairs and takes good care of the house. She actually put granite counter tops, wood floors and paid for some minor fixes. The house I just purchased should be ok for awhile before needing any repairs and would also expect my father in law who is pretty hand to be able to do any minor fixes that will be needed. 

3. I guess there were multiple people interested in this property so my realtor thought we would have a better chance to get it if we offered cash. The original plan was to get a loan but after we talked about offering cash we decided to just pay cash, get the property and then refinance.  

4. Im not really sure what OPM stands for but i assume it means just a standard mortgage. Maybe i am putting to much money down on these properties but in the end i just want to pay the least amount of interest i can. After reading your guys responses I am rethinking the amount I want to put down on the house I just bought. Maybe only put down like $40k, put $40k down on another place and then maybe end up getting 3 places this year. I guess it doesn't really matter as long as the rent covers the mortgage each month because I had no intention of pocketing any money this year from the properties. 

I know i need to keep a good amount of money in my brokerage account just incase something does come up with one of my properties or in my personal life. I need to do some more research and see how it is possible to own 10 properties free and clear in 10 years. Just seemed easier if i put more money down the faster they get paid off but if I end up doing that i will just empty my brokerage account and that is not an option.

thanks again for the responses

I'm pretty new to all of this (just closed on my second rental last month), so take it for what its worth.

Here are my first thoughts...

If I had 700k, I'd buy as many high cash flow properties as I could (probably 15-20 or so SFR) with 500k (down payments, plus closing and repairs) and keep 200k for reserves.

If you buy smart, 15-20 properties could get you cash flow anywhere from $4,500-$8,000 a month right off the bat, no need to work at your other job for 10 more years unless you really want to.

It is possible for you to go into "semi-retirement" right now if you use your $700k wisely. Or you could go totally broke if you make to many mistakes, so please use caution and do your research properly.

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