Hello fellow BPers! I just recently joined Bigger Pockets and after reading some of the articles and listening to multiple podcasts, I've been bitten by the RE bug and I'm ready to take my property investment portfolio to the next level.
I'm looking for advice or hole-poking in my near-term property purchase plan. I currently own two properties that are cash flowing well. Going forward, I plan to purchase one SFR annually (buy-and-hold) for the next three years and then transition into multifamily properties. Fortunately, my salary and low living expenses allow me to save for an approximate down payment of 30-35% for each annual property purchase in the area of the country I'm considering. As mentioned above, my current properties are cash flowing and I love getting those monthly rent checks while seeing appreciation. With 35% down on a 15-year note, I would expect decent cash flow and a rapid equity increase.
Any flaws with this plan? Recommendations? Anybody of the school of thought that the least amount down over the longest note is the best?
Thanks for responses in advance.
Which market is the one you're planning on investing in?
Are you going the 35% down and 15 year route to be conservative and reduce debt? I like this strategy if you're slowing down and stabilizing your portfolio, but you're growing.
When you say "you want to get through 3 sfr's, one a year, before you get to multi", I'm kind of thinking up a plan to be able to get you into multi sooner with minimal increase to your risk profile.
I would do the following to get more for less, without overextending yourself:
-Get cheap commercial financing. I use US Bank, they allow 20% down. They let me use commercial financing on 1-4 unit, as well as 5+. I've got a relationship with a lender there that has been financing me at under 4% int, 0 points, even on low price purchases. 25 year am. This allows you to use more leverage, but it's cheap leverage.
-Pick high yield properties. If you can find quality working class rental property that gets you a 10-cap, it cash flows more, giving you a bigger margin of safety against your leverage and changes in the market. I only like using maximal leverage on very high yield property. I think if you're trying to grow a portfolio, and have to under leverage to feel comfortable, your property isn't cash flowing enough.
-The two things above, when combined, allow you to buy more. You can buy those 3 sfr's in select markets with strong rents for 180k total, and only 36k down, over the course of a year instead of 3, then jump straight to multi. Or you can buy a 3plex for 150k without accumulating SFR's if you find a good opportunity, and it will take 30k down.
I'm glad to talk more hypotheticals if you like, lol!
Thanks Elliott! Your point about growing my portfolio as opposed to stabilizing and reducing debt makes sense. I'm naturally financially conservative and have an unhealthy fear about "good" debt and getting over-leveraged lol.
I've been sort of on the fence b/w going the slow and steady route towards a multifamily purchase or just jumping right in, but I believe I'm at the point of taking the multifamily plunge in about 9 months on a purchase that meets my criteria.
Most likely, I'll be looking at an OOS purchase in the Manhattan and Lawrence, KS area with a focus on renting to college students. These are the same areas where my two current properties are located and I have a pretty good feel for the RE and rental market. Decent sale prices but unfortunately, low inventory. I may have to do creative searching when the time comes.
Thanks again for your advice and potential plans that I can use. Good stuff!
Yes sir! You understand your risk profile better than anyone else, and it should be taken into consideration when setting goals so I completely understand your preferences. Careful not to settle for too low of cash flow! It's easy to do in this market, lol. Even in the midwest.