I have 2 rentals free and clear, what's my next move?

Investor · Tucson, AZ · Member since 2016 · 7 posts · 3 votes

Three years ago I received a free/clear house on 2 lots and some money from family in my home state (currently active duty USAF). I immediately repaired anything wrong, updated the house and rented it. With the remaining money I purchased an additional small lot and a mobile home for a 2nd rental. After that I purchased 75 acres in the country. The 2 rentals net me around $1200 a month. My next step is buying the 3br 1ba house neighboring the lot with the trailer. The seller will carry the loan on that one and all other properties are free and clear.

In the end my goal is to retire from the Military and continue investing in rentals. My question for everyone especially the pros is, if you were in my shoes and knowing what you know now, how would you move forward?

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Matt Motil

Rental Property Investor · Cleveland, OH · Member since 2015 · 1k+ posts · 880 votes

10y

I would get HELOC's on both and use that money to continue what you have already started doing. Use the rental income from all three to pay down the HELOC and continue to wash, rinse, repeat.

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Matt Motil
Rental Property Investor · Cleveland, OH · Member since 2015 · 1k+ posts · 880 votes
10y
I would get HELOC's on both and use that money to continue what you have already started doing. Use the rental income from all three to pay down the HELOC and continue to wash, rinse, repeat.
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Account Closed
Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
10y
If you have no immediate plans I would sell the 75 acres. It will only cost you taxes.
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Elizabeth Colegrove
Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
10y
My husband is also active duty so I totally understand the desire to have a plan once you retire from the military. For us it is a goal of financial independence, so that we can sail around the world. Personally we do that by buying houses every where we go and leveraging our growth allowing us to quickly grow.
As to what to do next only you know, since you know whats your goal. You could refinance and cash out to have more money to buy investments. You could buy a personal property and house hack to raise more funds to buy more houses with cash.
We have 8 rentals and our goal is to buy the houses with as many down to allow us to buy as many as possible. This allows us to have more money for the next rental. On the other hand, we are okay with debt because as long as the profits are giving us our goal income, it does matter how, paid off or with mortgages. Since we will have less paid off, we will need more houses.
So its really a personal choice.
Good Luck! Hope that helps.
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Mitch Messer
Lender · Playa del Carmen, México · Member since 2014 · 2k+ posts · 1k+ votes
10y
Hi @Logan White! Well, I believe your very next step should be to decide just how much net cash you need each month to fund the lifestyle you want. Everything else is a tactical decision.
I'd also strongly recommend reading "Lifeonaire" by Steve Cook and Shaun McCloskey.
Once you have that number, calculate the gap between where you are and where you need to be. Then you can make informed decisions about HELOCs and raw acreage and whether or not you really want to be a landlord managing the number of rental properties you'll need to reach your number.
There's no shortage of ways to make money in real estate, but make sure your tactics support your lifestyle, rather than the reverse!
I can't tell you how many investors fling themselves into this business with no consideration of the endgame. I should know: A few years ago I was one of them!
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Logan White
OP
Investor · Tucson, AZ · Member since 2016 · 7 posts · 3 votes
10y
Wow, already good thought provoking advice. Selling the land has definitely been on my mind because that money is not really working for me.
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Logan White
OP
Investor · Tucson, AZ · Member since 2016 · 7 posts · 3 votes
10y
Originally posted by @Mitch Messer:

Hi @Logan White! Well, I believe your very next step should be to decide just how much net cash you need each month to fund the lifestyle you want. Everything else is a tactical decision.
I'd also strongly recommend reading "Lifeonaire" by Steve Cook and Shaun McCloskey.
Once you have that number, calculate the gap between where you are and where you need to be. Then you can make informed decisions about HELOCs and raw acreage and whether or not you really want to be a landlord managing the number of rental properties you'll need to reach your number.
There's no shortage of ways to make money in real estate, but make sure your tactics support your lifestyle, rather than the reverse!
I can't tell you how many investors fling themselves into this business with no consideration of the endgame. I should know: A few years ago I was one of them!
Thank you for this, it really has made my gears turn. I looked into the book and from what people are saying it could benefit a beginner.
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Samantha Klein
Investor · Monroe, WI · Member since 2015 · 691 posts · 610 votes
10y
@Logan White I own two rentals as well, one free and clear and 1 mortgaged. I would personally look into multi-family deals, I buy 2-4 unit buildings and up because they provide better cashflow, my net freedom number is 5k a month and it'll only take 16-17 units to make that happen for me. I'd determine what your freedom number is also and then go from there as was mentioned above. Good luck!
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Jeremy Shepherd
Rental Property Investor · New Martinsville, WV · Member since 2012 · 105 posts · 44 votes
10y
Use the equity and invest in more properties.
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Bill Manassero
Rental Property Investor · Mission Viejo, CA · Member since 2014 · 230 posts · 113 votes
10y
Definitely cash-out re-fi or sell the SFRS, sell the 75 acres or build on it. Then, purchase multifamily. The economies of scale with multifamily far out weighs buying SFRs. You'll grow your cash flow and equity much faster.
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Josh Caldwell
Investor · Dallas TX, United States · Member since 2014 · 1k+ posts · 1k+ votes
10y
In my opinion, the market is going to crash, play defense. In 2008 I had a friend who lost 200 million because he was over leveraged and couldnt hold onto his portfolio. Sell off you acerage or a portion of it to buy another free and clear property and use those free and clear properties to buy your next keeper. Keep doing this until you retire.
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Dillwyn Mathurin
Austin, TX · Member since 2016 · 26 posts · 4 votes
10y
Josh Caldwell I really like your strategy. Most investors on BP are focused on leverage, however, if you didn't have a mortgage you pay nothing on debt service and you end up building wealth much faster. I strongly feel debt free is the way to build wealth but I am slowly trying to dip my toe into the leverage pool to see if it will make a difference. Thanks for your great insight.
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Rich Ferradino
Investor · San Antonio, TX · Member since 2013 · 206 posts · 71 votes
10y
if there is a demand, subdivide the land into mutiple lots and sell them owner finance. Hopefully you bought the land at a decent discount at 75 acres.
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George DespotopoulosBusiness Member
Lender · New York, NY · Member since 2016 · 936 posts · 287 votes
10y
@Logan White - You can always explore potential rental investor loans with specialty lenders. There are a number out there that will look at the actual income from the property to qualify you for a loan.
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Andre P.
Madison, WI · Member since 2016 · 53 posts · 23 votes
10y
@Logan White
@Mitch Messer gave excellent advice. Without knowing what your specific goals are, you can't develop a strategy, I'm sure that being in the military you're well versed in how that applies.
It sounds like you've got a great start- good luck!
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Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
10y
Leverage or not is your decision as a aggressive or conservative investor. However what most free and clear investors fail to understand is that money is worthless unless it earns it's keep. Sitting dead in a property makes it mandatory that you attribute a return to that cash before you start counting profits from the rental income.
A rental property does generate a income but the cash in the property also generates it's own income stream. At 5%, which is a very low return for a investor, $100K in equity takes $416.66 directly off the top of your rental income before any other deductions.
Calculate a return on your equity, deduct it from your rent and then see if you are making any money. If you do not do this you are placing zero value on cash which to a seasoned investor is a primary sin.
Personally 5% is not enough to suite my investment goals and can easily be surpassed but each to their own.
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Art G.
Wholesaler · Ojai, CA · Member since 2016 · 107 posts · 74 votes
10y
You need to access the money that is your hands that you do not see. Let me explain it the way my mentor did, who is one of the nation's leading financial minds. The topic was free and clear vs mortgaging the house.
The good people in Katrina's path are the subject. Two houses, one free and clear, the other with a mortgage and the cash in the bank. Both worth $100k. One neighbor has no debt to worry about bc he owns a house free and clear. The second neighbor has $100k in the bank bc he took cash out of the home to invest in real estate. Katrina hits. Floods wipe out both homes. One has no house, no equity and no money in the bank. The other has no house, no equity, no collateral his mortgage is attached to and most of all.... $100k in the bank.
You cannot invest equity. But you can borrow against that equity and leverage it to earn more money. Search for a great rate, borrow as much as you can and invest. But... there has been a lot of great points made about an upcoming drop in value. In CA a lot of us think its coming next year too. So what you should do is invest that borrowed money in a legit fund that offers a well thought out and safe return, around 7-9% is legit. You are borrowing at 3% and earning 9% means you profit 6% on your money. That is way more than your equity is earning. Check out Crowd Funding sites, they are vetted and serious professionals and you can choose which project is right for you.
Then when the market dips again, you can pull the money out of the investment fund and buy more properties.
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