Game Time! What would you do?

22 Replies

Hi All!

My wife and I are anxiously waiting for our SFH rental property to close mid-Sept. We've had this property for over ten years and plan to take the equity (via 1031 exchange) and invest into a larger project(s). It's taken us a while to make it to this point coming out of the recession and knowing the markets are at an all-time high, we want to ensure we align everything as best as possible before our next move. I'm going to outline some of our goals and areas we are looking for advice below. Would love to hear your feedback on pieces on any or all of it.

Life Goals-

-Own 15-20 doors by 2021

-Become a success story within the BP family

-Quit our JOBS by 2022 (w/passive income from investment properties and our real estate business)

Financial snapshot for our purchase-

-$91k (1031 Exchange money)

-134k (Cash and LOC)

-Total=$225k to invest

We are on a tight timeline with the 1031 money, so would appreciate advice on our overall strategy

Strategy-

As a seasoned investor, if you were in my shoes and with our goals in mind- what would your strategy be? Please keep in mind that we will have a 45-day window to select at least one property with a value of at least $265k.

1) BRRR (to continue equity growth)-This seems like a great strategy, but I'm concerned with interest rates continuing to rise

2) Invest it all in one property

3) Find multiple properties

4) Other- please explain

Return-

There seems to be a lot of different ideas out there when it comes to returns. What type of annual return should we be targeting with this amount of money?

Location-

What are your top two favorite markets and why

Lending strategy-

If we are unsure about the type of property we are seeking, what would be your strategy for lending? Should we find conventional and commercial financing simultaneously?

Any additional advice you have for us beyond these bullets will be happily accepted.

Thank you all so very much for taking the time to read and respond!

Best,

Chris Tolstoy

Because you are looking for 20 doors in 3 years I would suggest you look into multiple family.  his would be the fastest way into so many doors.  I think you are aggressive with how many and a retirement date but I think if you eat sleep and breathe it it will happen.

@Michele B. Thanks for the response and I appreciate the feedback on the schedule. Thinking if we land a larger project up front we can hit the goal for number of doors. Transitioning into our real estate biz, along with supplementation from investment properties would be ideal by the timeframe given would be ideal, but might be too aggressive.

Well, as a seasoned investor I wouldn't plan on a 1031 and then post on BP asking how to do it :)

Put this money under the mattress until you figure out what to do with it. 

Strategy - BRRR is the superior strategy. Who cares about the interest rate if you can find a loan product with a fixed rate that allows you to cash flow?

Return - You can get outstanding returns with BRRR (possible for infinite returns) but I say at least 15% cash on cash.

Location - there's a lot of good markets, check your local market first, then look into the Indianapolis, Memphis, St. Louis type markets

Lending - Find a good local portfolio lender.  Ask around BP for referrals.  

With your $225k to invest, never tie it all up on any one property.  Maybe half at most.  Then you can use the other half if another deal comes along.  Using that rule, I'm assuming you can't go bigger than 1-4 unit properties.

Only other question is do you have a personal finance plan in place to continue "adding fuel to the fire" i.e. can you add $1K, $2K, $3K a month from your J-O-B's to the $225K RE investment pool? Because even if you do BRRRR's most of the time you can't get ALL of the money back.

My personal strategy is I have an investment pool which I add to every month from my J-O-B.  My RE goal has been to keep buying properties that cash flow while keeping the investment pool steady or rising with additional "fuel" from my J-O-B.

I agree with @Kyle M. that you shouldn't use all that money to invest in one property (unless it is a unicorn of a deal). With that much, and depending on where you look, you could grab up 2-5 properties. That's possible in the Cleveland OH market, which is one place I'm looking, but not so much in my local market of SoCal. 

Also be sure to set specific metrics around what an ideal buy is for you. $200 per door cash flow? 9%+ Cap rate? Use the numbers as guides so you don't have to worry about being emotional about a purchase. 

Good luck!

@Ben Leybovich Wow! You would recommend taking the hit on taxes? Doesn’t seem wise early on. We’ve been feeding this particular property for a while and it hasn’t cash flowed. Finally in a position to move the money out of it and would hate to see more of it fade away to the IRS at this point in the game.
@Kyle M. Thank you so much for this response! Seeing responses from experienced investors is what excites me about the this community. I do plan on adding some of our income over time to future projects. Your advice about spreading over multiple projects seems like a good play and will definitely lay that into our strategy. In regards to your comment about hard money comment. Why is this route a good idea?

@Chris Tolstoy I would set goals based on what you and your wife want to achieve. For example, I want to own 50 units in the next 10 years, with a minimum cash flow (that I can bank) of $200 each unit per month = 10k per month. That is enough for us to live off the cash flow and still have enough to buy investment properties. 

Set your goals, and then look for deals that will help you get there. 

Originally posted by @Chris Tolstoy :
@Ben Leybovich Wow! You would recommend taking the hit on taxes? Doesn’t seem wise early on. We’ve been feeding this particular property for a while and it hasn’t cash flowed. Finally in a position to move the money out of it and would hate to see more of it fade away to the IRS at this point in the game.

All I am saying is that you are very likely going to go from a small bad property to a bigger bad property. Watch your back! 

@Chris Tolstoy , Just please tell me you have a QI lined up.  Because they need to be in place prior to the closing of your sale.  And if they've told you that you only need to replace the equity in the property in order to defer tax they are wrong and you ought to run now.  

I agree with @Ben Leybovich .  I can't speak from personal experience with a 1031, but I know others that get so caught up in being able to say they did a 1031 and so worried about the tax implication that they end up making a bad deal and the bad deal hurts more than paying taxes on the gains.  

I have similar goals. I'm using the BRRRR method to buy with cash, rehab, refinance and repeat. I have 3 duplexes in 6 months and still have a lot of my capital back for more deals. The part I like is the security of having 30 year fixed rate loans at ~5%. At some point, that will get more difficult, but I say take advantage of it while you can. Look at a fourplex or smaller that needs work where you can force appreciation and get your capital back. If it is 4 or less units you can easily get 70%+ LTV with 30 yr fixed loans for at least the first 4 loans. I like the idea of having one of my biggest "expenses" i.e. my debt service fixed for the full loan period, especially with risk of interest rates being on the rise.

@Chris Tolstoy if you are planning on doing a BRRRR then have your lender lined up prior. If you 1031 into a BRRRR property or properties then plan on leaving equity in the deal. Anyone that promises 100% cash out on your refi is not being truthful or realistic. Can it be done? Sure it can, but go in with the mindset that you'll be leaving cash in the deal. With that in mind, how does that change your investment strategy at all? In order to be successful in the BRRRR strategy you also have to have contractors and a team in place that will run these jobs with your best interest in mind. It can be done, just know your potential downside prior to jumping in. Happy to explain additional.

@Ryan Howell Makes complete sense in regards to the 1031. We are attempting to do as much per-work as possible before the clock starts ticking. Not opposed to letting go of some of the gains if the right property isn sourced, but our goal is to find at least one property to move the funds into. Congratulations on your success so far! Would like to hear more about what you are doing. I’ll reach out via PM.

@Chris Tolstoy First thing I would do is find a deal.  The hardest thing to do in this market is finding a deal.  If you do end up doing a 1031 exchange, find multiple deals.

Long distance investing is much more risky, especially for someone with little experience.  I recommend finding a place within driving distance so that you can tend to your baby if you need too.

Good luck!

@Daniel Guerra I really appreciate your advice on finding a local deal.  Reading this all over BP and I've now heard it from a couple of people.  The property we are in the process we are selling is another state and luckily it's been easy to self manage over the last 8 years.  I can definitely see the challenges with owning multiple doors out of state.  

What's your process for sourcing the right property managers?  Asking in case I do need to go out of state. 

@Chris Tolstoy You can reach out on the the Bigger Pocket forums and ask for referrals.  You can double check the property managers by checking for reviews online and question them yourself.