Would love some real estate investing advice

8 Replies

Would love to get some advice on what I should do next in regards to purchasing more properties or selling what I have now. Im 42 years old and got hammered in the real estate crash in 2010 I had some investment properties that I had to shortsale in 2011. I began buying again in 2013. My first purchase was a duplex in Washington State for all cash in 2013. I was unable to get a loan so I had to do an all cash purchase. I have since bought 5 more duplexes for an average price of around 150,000-180,000 dollars. All of these are located in the pacific northwest. I recently had to relocate to Nevada for a new job and now have rented out my primary residence which is in San Jose California. I bought it in 2013 as a foreclosure and have about 400,000 in equity in the house and am positive 1000 dollars in rent per month. I recently bought a house in Nevada which is my primary home. My question is what to do next? I will list what my mortgages are for my duplexes and how much is coming in. Should I try and buy more duplexes? The areas where I was buying have appreciated a lot and the deals are just not very good anymore. I have been trying to take all of the rent money from all the duplexes and pay them off one at a time. Would love to get some ideas on what I should do.

Duplex 1 paid all cash 122,000 is now roughly 180,000 not a very good duplex,old and just a decent neighborhood. rent is 800 per side. 1600 total. take home is usually around 1100 a month, taxes,insurance, prop management,water sewer and repairs

Duplex 2 150,000 Put 50,000 down have been trying to pay this one off using the other rent money from the other properties. I owe 47,000 on this one. total rent is 1900 per month mortgage is 850 with taxes and insurance included usually around 400-500 month profit unless a big expense happens This one has appreciated to about 250,000

Duplex 3 The rest 3,4,5, and6 are all very similar to duplex 2 around 150,000 give or take about 50,0000 down rents between 1700, and 1950 per unit. Mortgage with taxes and insurance 800-900 dollars per month. Usually take home 400 per duplex

Duplex 4

Duplex 5

Duplex 6

House Rental 7 This was my San Jose Primary residence Had to relocate for work. Bought in 2013 for 388,000 it was a foreclosure put 88,000 down and owe around 283,000 its worth around 800,000 mortgage is 2200 with taxes, insurance and get 3200 in rent money.

Primary residence in Nevada just purchased house for 375,000 and put around 60,000 down

Recap

Duplex 1 paid all cash positive 1100

Duplex 2-6 positive average 300-500 a month= 2400 positive on units if none are vacant

House rental in San Jose positive 1000 per month

So on a really good month if there are no vacancies and no problems which rarely seems to happen I am positive cash flow around 4700 per month. It seems on average its usually 2800- 3800 positive. Any advice on what I should be doing? Should I continue to pay off each duplex? Sell some and do a 1031 exchange and get bigger units? Buy more even though the market is way to hot? Refinance the one that is almost paid off and take money out to invest with? I dont want to refinance my house in San Jose since my interest rate is 3% I do have good equity in the house though. Would love to get some advice. thanks

Ian

my first question would be in regards to your San Juan property. The return you are getting is aweful for the equity position you have. do you plan on moving back? do you anticipate further appreciation? if you took the equity in that property you could buy a/few property(ies) that would net a lot more than $1000 per month.

Personal Opinion-  I think you are in a great position.  I like to invest where I live, but that is a personal opinion.  Sounds like you are doing great with your pay down.  If you have honest property management, repairs are being done correctly, I see no need to take the plunge if your happy with your investments.  If you can purchase property where you live and like that area, I would consider doing a 1031 exchange.  

You get to keep your tax advantage, you have property closer to where you live and you can continue to grow your investing.  The house in San Jose, is in California, with $100K in equity only providing $1000 positive cash flow.  If you have lived in it 2 of the last 5 years, you can harvest that equity also.  If you can use the $100K to buy something closer, with a higher return closer to you in a landlord friendlier area would that be better?  

Yes the 3% interest rate is great, but remember that money is just a tool, and the interest is the rental on the money you use.  If you can make more elsewhere, why not move it to be closer to you get to watch your investment grow.  

However, if you just let them pay off where they are, you will be in great shape.  If the market crashes, and you have paid off properties well, rents may go down but you would not be endanger of losing them.  I do believe the market is overheated in some areas, but some areas will be hit harder than others.  I am in Texas, we were hit but not near like markets in California, Arizona, Florida etc.  

Good Luck to you

You presently have about 1M in equity, With a opportunity value of 10% that would be a monthly income value of approximately $8333.

IN your best month with a income of $3800.........$8333 - $3800 = ($4533)

Your properties collectively are a major liability in real numbers producing a negative cash flow of $4533/month.

Your equity is killing your cash flow and needs to be pulled and reinvested or the properties should be sold and invest the cash in REITS, income funds, mutual funds etc. that would produce a reasonable 10% return without the e nuisance of owning real estate.

Without the speculation on appreciation the properties are not worth owning and you risk losing equity in the event the markets shift. I would find a way to make your equity earn it's keep. As is it is costing you money, a lot of money, as dead equity.

Thanks Joe and Ron

Yeah the house in San Jose, Ca was bought in 2012   I bought it for 388,000 and put about 80,000 down.  I owe about 285,000 on it now.  I lived in the house since 2012 and moved last year to Reno.  The mortgage is 2100 per month with taxes and insurance included in the mortgage.    The house value is 840,000  I think the market will slow down but I may eventually move back so I don't really want to sell the house.  Would you recommend pulling some money out of the property and buying something else?

thanks

Ian 

Thanks Thomas  the 6 duplexes have all appreciated between 75,000 and 100,000 my goal was to pay them all off using the rents collected and hopefully have them free and clear in about 12-15 years.   I only owe 30,000 more on the second one that I purchased which would give me about another 800-900 dollars a month cashflow.   Once all of them are paid off I should be around 8000 or 9000 per month and still have all of my properties.  thoughts?

Ian

First off I want to congratulate you on doing all this while getting hammered in the downturn. It seems you have recovered quite well, when most people probably would have just cashed out.

As to your question, personally I would sell the San Jose house and 1031 exchange it into something bigger in the Pacific Northwest near your other properties.

I had not actually looked at the amount of equity.  It is killing you in my opinion.  I would definitely pull the equity and redeploy it in between 2.5 and 3.3 mil in property.  If you invest in a good area, you will be destroying the principle on the loan, get more cash flow, since not over leveraged would be protected against a turn down, and have the opportunity at massive appreciation.  Just a thought to consider.  

@Ian Russell , You've done awesome to date.  Anyone burned by the last credit crises knows how good it can feel to be under leveraged with debt free assets!.  This could be redeployment time though.  Use 1031s to consolidate and move geography from the highly appreciation dependent areas and sectors and go into better cash flow - maybe in other geographies or moving into denser MF or commercial assets.  You've got a job so the growth you're compounding is going to grow very quickly.

Maybe look at the your 1031s as an opportunity to consolidate into a min-max portfolio redistribution. purchase your cheapest best cash flow assets for cash with minimum leverage. And purchase more expensive lesser cash on cash return assets with maximum leverage. This keeps you leveraged for growth and will sustain your ROI including opportunity cost. But it will also leave you with your best cash flow assets crash proof.

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