Starting small -- or big (keep my rental or sell it)

Buying & Selling Real Estate
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Starting small -- or big (keep my rental or sell it)

Ryan F.
Spencerport, NY · Member since 2014 · 26 posts · 7 votes

This is my "dillema". Not really a dilemma, more just my thought pattern. 

I have 1 rental property, which I inherited. It is worth about $100k and has a $25k HELOC on it -- therefore, after closing and paying off the HELOC I'm thinking I would walk away with about $65k.

The HELOC is $120 per month with $400 in taxes per month and $80 in insurance per month. Renter pays everything else. $600 total expenses and it rents for $1100, resulting in a $500 cash flow per month.

I could:

1) Keep this property (it's in a suburb with the city pushing in on it a bit), and save up $20k in the next year to purchase another 100k rental property. And go that route every couple of years or as soon as I could save another $20k.

OR

2) Sell my rental property, take the $65k and attempt to purchase THREE 100k rental properties, each with $20k down.

OR

3) Sell my rental property, take the $65k from it and a little savings and purchase a 10 unit apartment building carrying a $300k mortgage with a supposed $35k cash flow.

Thoughts?

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Rick H.
Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
12y

"Don't wash your socks for a year". That was the advise someone gave to a relative after their spouse died.

The point is not so much about the emotional shock, which you have not discussed, but the adjustment period of learning to think like an investor. 

I got zero education about investing from my family and I'm fine with that. At least I didn't have to unlearn as much as others sometimes do.  Your biggest opportunity, IMHO, is to focus on the educational aspects of investing, including different real estate types, advantages and disadvantages of each, as well as paper (notes) and other instruments for cash flow. This process will largely answer your question for you.

Many people have become rich buying SFR's as they're much more liquid than bigger projects, and probably more forgiving if you make a big blunder. Personally, I like paper, however most notes don't appreciate (unless you bought at a discount and can realize the gain from the spread).

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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    12y

    So if my math is correct each unit of the 10 unit apartment only rents for around $300 per month?  It must be in an absolutely terrible area and I could not imagine paying $300k for something in the hood. All units will have a hard time staying occupied, maybe 6-7 at best. 

    What will a home that you buy for $100k rent for?  Your making $500 on the one you currently have and I doubt you will get that on another one. 

    Maybe option 1.

    Curt Davis - KAIZEN Realty538 Reviews
    WebsiteView Page
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  • Ryan F.
    OP
    Spencerport, NY · Member since 2014 · 26 posts · 7 votes
    12y
    Originally posted by @Curt Davis:

    So if my math is correct each unit of the 10 unit apartment only rents for around $300 per month?  It must be in an absolutely terrible area and I could not imagine paying $300k for something in the hood. All units will have a hard time staying occupied, maybe 6-7 at best. 

    What will a home that you buy for $100k rent for?  Your making $500 on the one you currently have and I doubt you will get that on another one. 

    Maybe option 1.

     The 10 unit rents for $600 each I believe ... It is in the outer edge of the "hood". Not a great area but right outside the really bad area. No go then? I'm here to learn so give it to me haha.

    As far as your 2nd question - it depends on who you ask. Some say a $100k home in my area (which gets you in a decent suburb), will net you around $250 per month after mortgage, insurance, etc. However, I would be purchasing THREE of those with the $65k rather than the 1. 

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  • Ryan F.
    OP
    Spencerport, NY · Member since 2014 · 26 posts · 7 votes
    12y

    To give you an idea of what you can purchase for $100k in my area.

    http://www.nothnagle.com/Properties/Details.aspx?MLS=19&M=R252955

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  • Rick H.
    Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
    12y

    "Don't wash your socks for a year". That was the advise someone gave to a relative after their spouse died.

    The point is not so much about the emotional shock, which you have not discussed, but the adjustment period of learning to think like an investor. 

    I got zero education about investing from my family and I'm fine with that. At least I didn't have to unlearn as much as others sometimes do.  Your biggest opportunity, IMHO, is to focus on the educational aspects of investing, including different real estate types, advantages and disadvantages of each, as well as paper (notes) and other instruments for cash flow. This process will largely answer your question for you.

    Many people have become rich buying SFR's as they're much more liquid than bigger projects, and probably more forgiving if you make a big blunder. Personally, I like paper, however most notes don't appreciate (unless you bought at a discount and can realize the gain from the spread).

    1Reply
  • Ryan F.
    OP
    Spencerport, NY · Member since 2014 · 26 posts · 7 votes
    12y
    Originally posted by @Rick H.:

    "Don't wash your socks for a year". That was the advise someone gave to a relative after their spouse died.

    The point is not so much about the emotional shock, which you have not discussed, but the adjustment period of learning to think like an investor. 

    I got zero education about investing from my family and I'm fine with that. At least I didn't have to unlearn as much as others sometimes do.  Your biggest opportunity, IMHO, is to focus on the educational aspects of investing, including different real estate types, advantages and disadvantages of each, as well as paper (notes) and other instruments for cash flow. This process will largely answer your question for you.

    Many people have become rich buying SFR's as they're much more liquid than bigger projects, and probably more forgiving if you make a big blunder. Personally, I like paper, however most notes don't appreciate (unless you bought at a discount and can realize the gain from the spread).

     Good stuff.

    I probably should have listed my goals so people could help me better.

    My goal is to build wealth through real estate so when I am in retirement age I won't have to worry about whether social security will be in existence or if my 401k is enough.

    And if I could make a couple grand a month along the way that would be great as well. But its more for my future. 

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  • Ryan F.
    OP
    Spencerport, NY · Member since 2014 · 26 posts · 7 votes
    12y

    Anyone else have an opinion?

    0Reply
  • Mike D.
    Middletown, NJ · Member since 2011 · 108 posts · 22 votes
    12y

    The taxes really kill the cashflow on your rental. Nearly 40% of the rent is going to taxes. Are you really paying $4,400/ year in taxes on a $100k property? That's high even by my standards and I live in New Jersey.  Read about the 50% rule talked about on here.

    Your $500/month cashflow does not account for a single repair. I think your true cashflow after accounting for reserves is minimal. I would not keep 65k in equity locked into this deal nor would I purchase more of the same.

    Maybe try looking out of the area if you are fixed on rentals.

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  • Ryan F.
    OP
    Spencerport, NY · Member since 2014 · 26 posts · 7 votes
    12y
    Originally posted by @Mike D.:

    The taxes really kill the cashflow on your rental. Nearly 40% of the rent is going to taxes. Are you really paying $4,400/ year in taxes on a $100k property? That's high even by my standards and I live in New Jersey.  Read about the 50% rule talked about on here.

    Your $500/month cashflow does not account for a single repair. I think your true cashflow after accounting for reserves is minimal. I would not keep 65k in equity locked into this deal nor would I purchase more of the same.

    Maybe try looking out of the area if you are fixed on rentals.

     Welcome to Upstatr NY lol.

    My 180k primary home has close to $700 a month in taxes.

    As far as the 50% rule ... We've had the property for 5 years and have put about $50 in repairs in it. And that was for a new dehumidifier in the basement. Maybe were lucky? Lol.

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  • Mike D.
    Middletown, NJ · Member since 2011 · 108 posts · 22 votes
    12y

    All the more reason to expect higher than average repairs in the future. You are 5 years closer to having to replace the roof, the furnace, water heater, etc. When those items need replacing it will come out the $500/month cashflow right?

    Have you had the same tenant for 5 years?

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