Implications of buying more investment rental houses?

5 Replies

I'm looking at the issues and risks for buying more rentals as investment properties:

Cons:

-Difficult to get your money out without capital gains. Either forced to keep 1031 exchanging or cash out refinance. Could move into a rental and have the gains prorated after a 1031 exchange at some point, but a lot of hassle...

-More natural disaster risk exposure, as I live in earthquake country.

-What if the market drops and rents drop? Leverage accelerates losses and then you're stuck with a property and tenants until the next boom.

-Investment property loans are recourse loans. I'm risking it all.

That said, I hate giving up the appreciation I expect to continue (with a minor slow down 2018/2019) by not buying more. Having sold the golden goose, I need to replace it with something. Stock index funds are one option but a little worried about that being at it's peak if not near it's peak. Real estate is easier to predict as supply is still low and demand is high.

Have you considered investing into businesses as another means for a higher return?

Originally posted by @Chris Ellis :

Have you considered investing into businesses as another means for a higher return?

Like as a silent partner/financier? Not really. Seems risky to me. So many businesses fail.

wait, you didn't list the pros

the risks you mentioned are correct, but can be mitigated and not nearly as bad as you said. you "risking it all" isn't really correct, market drops are temporary, you can get your money back out (and more) using BRRR

only focusing on the downside is a hard way to get ahead. Did you mention the advantage of investment real estate: in a few short years it can fund your retirement for life, it's fairly low risk, and tried and true to work? it allows for massive scale as well

you should always work to protect the downside, but focusing on it is a mistake imo. Lots more upside than down in RE


If you really want to invest in something else, they all have similar inherent risks and all mediums will look similarly bleak if you only focus on cons.

IMO

I spent a few years adding to my rental portfolio in the '80s and only added a lot of rentals when the Houston market heated back up between '87 and '91 or so. I always had a good cushion, positive cash flow however small plus my wife and I were both professionals with good paying jobs. We started slamming everything we could spare into paying off our loans, we're pretty conservative investors, and by '93 we owned 12 paid off rentals and 1/2 interests in 4 others with family members. 

My theory was that if I owned one rental and it was empty I had a 100% vacancy rate, but if I owned 2, 3 or 4 and one was empty my vacancy rate was 50%, 33%, 25%. All other things being equal. Of course if we owned 4 and 2 or 3 were empty that ratio goes out the window. By investing conservatively, in good middle class neighborhoods we never suffered much in losses and by not having loans our flexibility and ease of purchase (cash) and sales (seller financed) always went smoothly.

Originally posted by @Alexander Felice :

wait, you didn't list the pros

the risks you mentioned are correct, but can be mitigated and not nearly as bad as you said. you "risking it all" isn't really correct, market drops are temporary, you can get your money back out (and more) using BRRR

only focusing on the downside is a hard way to get ahead. Did you mention the advantage of investment real estate: in a few short years it can fund your retirement for life, it's fairly low risk, and tried and true to work? it allows for massive scale as well

you should always work to protect the downside, but focusing on it is a mistake imo. Lots more upside than down in RE


If you really want to invest in something else, they all have similar inherent risks and all mediums will look similarly bleak if you only focus on cons.

IMO

How would BRRRR help me in a down market when I can't get money out of my houses?

I already know the pros. The thread is about the implications/risks of buying more rentals. I'm trying to think long term. If I go through with buying more rentals it's difficult to get out of them completely tax free. 

I just want to know all the issues/risks and see if they are valid before I pull the trigger on more purchases. I know the pros ($$$$$) but want to better understand the implications that are negative.

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