End of Year One-what I've learned and where to go from here!

14 Replies

Hello All,

I just finished up my first year of investing. All in all it went well. My property is a 2 bedroom 2 bathroom condo in the DC suburbs. It took about 6 weeks to get rented, but my property manager did a great job, found great tenants and they have just renewed for another year lease.

This was originally purchased as my primary residence, so my invested capital isn't high. Percentage wise the return is decent (over 10% before tax benefits), but the cash flow isn't great, but it's in a great area with solid appreciation, so I think I'll hold on to it for the long term. 

Next year, my goal is to buy my next purpose bought rental property in Q1. This will give me my 2nd year of rental income on my w2, so hopefully whatever bank I use will count my rental income toward my DTI ratio!

So now for the questions! 

1. The condo fees are going up next year by 2.5%, should I try and raise the rent at the beginning of year 3 if the tenants choose to stay? I don't want to make them want to leave, but I'd like to keep my margin about the same.

2. Where to invest next? The high price of real estate means I'll almost certainly not be available to buy my next property locally. I'm looking at Richmond, VA and Charlotte, NC metro areas for my next property-anyone have any experience or thoughts on these two cities? Though I can't invest locally, I like the thought of being able to get to a place via car fairly easily.

3. Financing-Here is my thought for future financing: I take a cash loan from my 401k (for a $50 fee), pay cash for a property that I find, preferably with 25-30% equity, get a mortgage, pay myself back, and on to the next one. Do you think a bank would go for that? It seems better than saving and saving for a 20-25% down payment. 

4. Mobile Homes- Here in northern VA there are 2-3 mobile home parks, with the price for the units at 50-60K and renting for 1100-1200. Obviously there are pitfalls to every investment, but how does this sound? What sort of expenses go along with this type of property?

Thanks in advance, looking forward to year 2!

Well...  You are ahead of the game compared to me as we have just pretty much finished up our 1st quarter in investing and still have no deals to speak of yet.  Definitely anxious to get one under our belt but taking the time to educate ourselves and make sure that we get a good deal not just a deal to get one.  Anyway, I can take a shot at questions 1 & 3...

1.  I think the general idea would be to bump the rent in line with inflation and any other factors.  Personally, I would definitely bump the rent unless you are already high in your market.  Your market position will help to dictate what you should do.  If you are already getting $100/mo more than your surrounding units then I would sit tight on the rent for now and be happy.  If on the other hand you are on par or significantly below then I would just let the tenant know that you are bumping the rent due to the increase in condo fees and they shouldn't have a problem with that if they are otherwise satisfied with the property.

3. I think that financing yourself out of your 401k is a great idea. You might want to simply use the 401k funds for the 20% down with bank financing at the outset rather than trying to make the cash purchase then refi with a bank. I would check with your local mortgage broker though and see which route makes more sense for you though. Either way, if you have the funds in a 401k I would definitely tap into that as opposed to other financing options and you can dramatically accelerate you portfolio growth by leveraging those funds. Just analyze your potential investment property and see what your COC return is going to be. If it's a good deal it should be dramatically better than your expected 401k growth.

Good luck.

Welcome to the Charlotte area.  My husband and I are transplanted locals just getting into real estate investment.  My husband is a licensed General Contractor and I'm a licensed agent so we have 2/3rds of the equation.  Looking for our first flip now.  Best of luck 

@Joseph Morell  To off-set the higher cost of properties in NoVA have you thought of acquiring them via subject-to and/or owner financing? I'm not sure how viable that strategy is up there but thought I'd mention it.

@Scott Nipp  Are you investing locally in DFW? That's one of the areas on my radar, as I have some friends in Arlington (TX)

@Cindy Bowman  Well, I'm not actually in the area yet! Charlotte seems to have all the ingredients for a decent investment though! Are you looking to flip or buy and hold?

@Daniel Harnsberger  the thought has crossed my mind, I just dont see people letting things go for less than retail, even if it is owner financed. Where in RVA are you investing? Like I mentioned, its one of the places I'm considering for #2!

@Joseph Morell  

Charlotte is great, but property can be a bit expensive.  As with most other areas, it depends on where you're looking and the quality of neighborhood you're willing to look at.  Overall, to stay out of the neighborhoods that regularly make The First 48 and still have reasonable values, you can stay on the north side of the city...north of W T Harris & University City Blvd and out of Highland Creek, just because property values are probably too high.  The area over by UNC - Charlotte is always good for buy & hold.  I love the Prosperity Church & Davis Lake areas.  Those spaces are all in Charlotte proper.

For suburbs, Huntersville is great, Matthews, Concord, Mint Hill, Pineville.  There are definitely other areas that are highly desirable, but you may have a more difficult time finding "deals" there.  That definitely includes the uber chic neighborhoods just south of Uptown Charlotte....no...there is no downtown.  It's very confusing!  ;0

@Joseph Morell  Yes.  We are investing locally in the DFW area, specifically the norhtwest Tarrant county area (Azle, Springtown, Lake Worth, Saginaw, White Settlement, etc.).  We are aggressively looking for deals in these areas currently.

@Joseph Morell  I like to focus on the east end and Church Hill area. Message me if you have any questions about the area. 

@Joseph Morell we are looking for a property to flip for our first one. 

@Joseph Morell  Congratulations on the first year under your belt! Sounds like your doing great, and regarding your rent situation I think @Scott Nipp hit the nail on the head in that you should only raise your rent if you are at or below comps in the area. It wouldn't be worth the hassle to lose a tenant over 3% of HOA.

Regarding the finance of your next property, a couple of things that I would consider is what you family situation is and what your job situation is. I would not use my 401(k) to finance the whole property, but I would strongly consider using it for 20% down. Any money you take out isn't in the market (which only matters depending to the extent that you're bullish in the market). The other reason is, heaven forbid, you have to leave your job for whatever reason, you will probably have about 60 days to repay any loans you have outstanding. Anything that you don't pay back will be subject to both ordinary income tax rates, and the early withdrawal penalty.

If you want, you can also buy it as an OOP and live in it for a year (a general requirement for buying it as an OOP) and then move out and possibly do it again, because owner occupied properties are easier to finance. The benefits to this are amplified if you have not owned a principal residence in the last 3 years, then you would be considered a first-time home buyer and can get financing for very little down.

Great job and keep up the good work!

Chris Haydis

@Chris Haydis  Thanks for the kudos! I thought about using it for only the 20% down, but it seems I'd get more leverage/flexibility if I just paid cash outright, then had a great asset to borrow against! 

Money Magazine has considered Fort Worth as one of the best value buys to live in the country (October 2014).  In a different issue (April 2014) they called Fort Worth on of the best places to buy Real Estate.  Forbes also called Fort Worth and Arlington the #1 place to invest in Real Estate in the nation!  (Click Link for article) Voting Dallas as #2 

I LOVE the Tarrant County market and Texas in general.   It's been good to me.  

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