Originally posted by @Steve Vaughan :
Totally depends on how these fit into your goals and what else you have going on.
Family, full time job, self-managing? Stressed or feeling free? Are opportunities for new property readily available anyway?
I'll just say congrats on having 9 houses and equity and cf. That's huge. We all don't need to stay to the grindstone and hunting and doing all the time.
Sometimes I look back and wish I only had 9 again. I have 4 open as of yesterday and that's barely 10%. I'll get through it pretty fast, but it's disrupting my nap schedule more than I like. More more more isn't always the answer.
Are those 4 vacancies causing you to go from a 10x napper to 3x napper? Grant Cardone wouldn't be pleased with that multiplier.
I appreciate all the advice. @Alan Grobmeier I agree that the market seems to be turning down. Part of me wonders if cashing out, while still covering my existing rents with a little room for cushion would put me in a spot to have 350k for the eventual downturn. Maybe even though my net cost would go up on the existing, i would then have sufficient cash to scoop up multiple properties on the downturn. thoughts?
@Ryan McCook , Don't know your shoe size so can't walk in em. But @Alan Grobmeier makes a really good point about the wisdom of looking at consolidation and recession proofing your portfolio right now. There's actually a way to do this tax efficiently using strategic 1031 exchanges.
1. Rate your properties on several matrices that include equity and gain, and cash flow.
2. Sell the properties that have the greatest amount of equity but the lowest amount of gain/depreciation recap, and cash flow. Do not 1031 these. Either pay down the other properties if you're feeling defensive which will bullet proof your portfolio and boost your NOI but drive your ROI down.. Or you can use that cash to purchase other properties more similar to the ones you kept. In which case you might want to consider a 1031 here as well unless you'd like to buy down.
3. The properties with the greatest amount of equity and greatest amount of gain/depreciation recap and greatest cash flow are good candidates for a refi to buy other properties.
4. The properties with greatest equity and gain and lowest cash flow should be considered strong candidates to 1031.
Originally posted by @Bryan Rogers :
I would agree with Paul on the multi-family part. You are sitting on almost $1,000,000 of equity and you're brining in roughly $48,600 a year. That kind of cash would land you in the $2.5 - $3 mill range and even at a lower cap rate you would still bring in more per year. My father-in-law and I are in almost the same boat. 13 houses netting just over $60K a year with roughly $1.4 mill of equity. He's tired of spending so much time on them for that return. We are about to pull the trigger on selling everything off, doing a 1031, and getting an apartment complex. Oversee the management company (much less of a time investment than being a landlord) and bring minimum $20K more than we are now.....might be worth looking into!
I agree that would be better if I found those types of terms, but I haven't been able to locate the type of deals that would bring a minimum of 20k. In fact, with costs of financing, my net gain doesn't seem to be much at all. Especially because I can reasonably easily manage the 9, whereas, I would need management company to help manage the apartments.
@Ryan McCook , it really depends on what you goals, your age, what you think you can/will do in the future. I am 58, so I am in 'protection mode' when compared to someone 38 or even myself 10 years ago. I don't have time to figure out what the 'other side' is going to look like if I make a bad move today.
So my 'water' mark was: Could I take a 20% hit to the top line and still be 'ok'? My reasoning is that the last recession saw rents in Phoenix DECLINE by about 10-15%. You need to remember that unemployment was almost 10% in the valley. So renters will be in the drivers seat and I will have to drop prices.
If the property was able to take a 20% hit from rental income, AND I would buy it again at the price I paid, it was a keeper. Obviously you learn and 'mature' as you fine tune your business model. Mine was 3/2 single story, in great school districts. My properties in not so good school districts, due to the fact that they are not as attractive, were the first on the chopping block. The fact that the cash flow was good or bad didn't really matter much. My question was: Would I do it again and did I want this property thru a recession where prices on unattractive things will fall faster than prices on attractive things.
Hope that helps you.
@Ryan McCook In my case I 'bulletproofed' a number of properties, put a bunch of $$ in the bank.
What I mean by 'bulletproof' is that ALL of my places have 100% tile floors, zeroscape, newer AC units and roofs. I've strategically figured out which house gets what type of attention to limit my tax exposure while putting most of my positive cash flow in my pocket. Most of my places are 20-25 years old, which is where the roofs and AC's start failing.
I also self manage and use home warranties as my first line of defense. It takes me longer to do my taxes with my CPA than it does for me to run my rentals. :-)
@Alan Grobmeier Are you primarily selling the under preforming properties at this time, pulling equity to buy more, or doing nothing and waiting for the market to dip?
@Jaron Walling , I am selling what I don't want to own in a recession. I will keep the most attractive properties regardless of cashflow, while selling off the least attractive properties. Since I balanced the cashflow ratios a number of years ago, everything is 'relative'. The properties that took me more than a week or so to fill are no longer in my portfolio. Call me lazy. ;-)
I used a bunch of money to bulletproof a property I own in California. I spent almost $80k on renovations and was able to raise the rent almost $1000 a month. Not a bad spend, if you ask me. And I now won't have to do it again for about 20+ years.
I'm not pulling equity on the existing properties I own. I looked at it as an option, but I deemed it to not be a very good option, even if I was to 'redeploy' the equity in a new property. The ROI vs increased interest rate on ALL properties left me with a 'net minus' compared to sitting tight.
So I guess the answer is that I'm sitting tight.
Originally posted by @Ryan McCook :
Over the last 5 years, I have acquired 9 rental properties in Phoenix, AZ. Homes cash flow approx. $450 per month each (some more, some less), and there's quite a bit of equity now since the market has risen. Amount owed, approx 1.3 m and they are worth approx 2.2 m. I don't have much liquid cash to keep acquiring. I can go the slow route and pick up maybe 1 home a year, or I could consider cash out refi and pick up another 9 or so properties, but the margins on my existing 9 would probably just cover maintenance and rent loss if i cashed out. What would you do in this scenario? I have tried my hand at flipping, but not with significant success. My first 2 homes netted me about 8k total.
I am in a similar situation. I have ten properties and most have 30 year fixed rate mortgages, with $400+ cash flow per property per month. All I plan to do is keep the properties rented and bank the cash flow for future investment. In your case, you can build up $48K per year, so what is wrong with acquiring 1-2 properties per year?
Refinancing costs money and pulling cash out raises your payment. The properties will no longer cash flow $450 per month so now your payments get tight. Not worth it in my opinion.
@Ryan McCook talk to your accountant or CPA about cost segregation. It's an excellent tax savings strategy for buy and hold investors.
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