Buy new investment or hold off

Birmingham, AL · Member since 2014 · 875 posts · 947 votes

7y

@Yuuj V. I guess my answer would depend on a couple items. Firstly, does the house you are considering require a TOTAL input of $30k, or is that in addition to the $18k dp? If it's in addition, you've essentially wiped out your reserves. Especially since your other prop is not yet rented, I would not recommend getting into such a cash poor position.

If it's $30k total, then it's maybe worth considering as you'd still have $20k in cash as a reserve. BUT all of this hinges on one very important phrase you used a couple times: 'if my math is correct'. I (and other BP members as well I'm guessing) would need to know more about your expenses and income assumptions on these properties to give a real answer. I know both calcs included a PM, but where are your numbers coming from? Your assumptions, a third party, the seller? Those kinds of details can make or break an investment.

Also, if the new house has 'other costs' that sounds to me like it needs work, which takes time. Once you buy the house, that rehab time is vacancy - unless you are buying from a good turnkey outfit that ensures you don't close until the rehab is done. If you already have one vacant prop, having another under your belt isn't going to make things easier, or less stressful.

I get that the FOMO thing, I really do, and I think you'll find a LOT of new investors have the same issue - you feel like you NEED to make a move. Sitting still is losing money. But the truth is, sitting still is sometimes making/saving money. Esp if you think a crash is imminent, go with your gut that says you need to have cash on hand. Don't pull the trigger on something just because it's in your price range and you want to be 'doing' something.

2 Reply

Clayton MobleyPro Member

Birmingham, AL · Member since 2014 · 875 posts · 947 votes

7y

Re: the Boardwalk prop - I agree pouring $100k into a single dp is not the most effective use of your capital. I'd say sit tight, save up, and then use your capital to buy a few lower priced props in markets where your money goes further. With $100k, you could put dp's on 3-4 solid B/B+ cash flow turnkey props in Birmingham, grossing about $2,900 - $3900 in rent per month. If one is vacant, the others could still be cash flowing. With one big property (unless we're talking MFR) a single vacant month eats into your returns pretty severely. Also, there may not be as big a market for renting the kind of prop that requires a $100k dp (assuming value of about $500k, rent of at least $5k). People that can pay that much rent would likely rather just buy a house.

Post your numbers on your current prop and the one you are considering and you're likely to get more/better/more detailed answers.

Good luck!

2 Reply

Yuuj V.

OP

Over the Rainbow · Member since 2016 · 65 posts · 35 votes

7y

Cost of house in OH:

Cost: $94,000

Down Payment: $18,800 (20%)

Rent: $1,220

Loan Payment	-$404
Property Tax	-$322
Property Insurance	-$63
Property Management Fees	-$110

Potential Rehab: $5000

Closing: $1400

Agent Fee: $3200 (maybe?)

Prepay Tax: $4800

Now, it is $33,200 total, but that is assuming the potential rehab is $5000.

I make out pretty well. I work oversea's, so investing OOS is the only way I can go.

0 Reply

Clayton MobleyPro Member

Birmingham, AL · Member since 2014 · 875 posts · 947 votes

7y

@Yuuj V. Yes the closing and rehab costs aren't the only issue though. You don't have a figure for vacancy or maintenance expenses, which will change your take home considerably. Also, does that rehab include new capex items (HVAC, roof, water heater, flooring etc), or are the existing items pretty new as-is? if not, you're likely looking at bigger repairs or replacements sooner rather than later (one reason you should always have a cash reserve)

1 Reply

Clayton MobleyPro Member

Birmingham, AL · Member since 2014 · 875 posts · 947 votes

7y

not saying this isn't a good investment, just that you need a more comprehensive picture before you can really decide

2 Reply

Yuuj V.

OP

Over the Rainbow · Member since 2016 · 65 posts · 35 votes

7y

I keep an extra $5K as a cash reserve... which, sadly and fortunately I had, I've had to use before on the IL house. But I keep it filled.

These estimates don't include CAPEX. Something I'd have to check into before moving forward.

I appreciate the sound insight @Clayton Mobley.

I just looked at the house and ran some quick numbers. I didn't factor anything else in. I'm not even entirely sure what the condition is. They say it's "move in ready". So... maybe it's good?

The more I think through this scenario, the more I'm leaning towards holding onto cash and just building a bigger position until I have $100K in cash and can *safely* purchase another without the gentle breeze knocking over my house of cards. I definitely should wait for the IL property to gets rented out.

1 Reply

Clayton MobleyPro Member

Birmingham, AL · Member since 2014 · 875 posts · 947 votes

7y

@Yuuj V. i think that's the smartest course of action. There will always be REI to be had, and as it looks like we may be nearing the top of this cycle, you may find that you end up in a better position by waiting a bit and buying the dip. secondary and tertiary markets dont get hit as hard by that dip, of course, but esp if you're looking in any primaries (memphis, SF, SD, NY, Seattle, Chicago etc) keep the swing in mind.

1 Reply

Chingju Hu

San Francisco, CA · Member since 2017 · 74 posts · 64 votes

7y

Originally posted by @Yuuj V.:

Hello BP!

At the current moment, I have about $50K liquid.

I already have a house with 25% equity on a $100,000.

The house has not had a tenant since I finished everything, hoping that changes real soon. (since about July)

I am hoping it brings in about $300+ in CF if my math is correct. That is including a PM to manage the property.

I see another house for $90,000, with an $18,000 downpayment, (And other costs ~$30,000) I could grab that house and, if my math is correct, will CF about $300+. (even with a PM)

I am stuck and not sure what I should do.

I am for a market crash, obviously no one can predict the future. So I want cash on hand, cash is king.

But I'm getting FOMO fever (Fear Of Missing Out).

Should I play it safe, and wait for property 1 to get rented so I can be a little on the safer side?

I was planning on saving up $100K for a 'Boardwalk' type property in MA, but thats such a large DP, I feel like I can do better with 1 - 2 other houses. This property is a 'heartland' type property, no where on the coast east or west. (or even south).

This is a good problem to have, but I'm not sure what I should be looking at or if my glasses are getting foggy.

My goal for 2020 is to have $10K passive income from properties, $350K - $500K in net worth.

This is doable, but my mind is going in so many different directions, its to the point of paralysis through analysis.

One property is based in IL, the other potential property is based in OH (I'm a long distance investor). Both are SFH's.

Insight is always appreciated.

Why don't you find a tenant first for your first property? why wait?

0 Reply

Yuuj V.

OP

Over the Rainbow · Member since 2016 · 65 posts · 35 votes

7y

Hey @Chingju Hu,

The PM has been trying to get it filled.

Unfortunately, I landed in a predicament where my former PM dropped me. A new PM picked up. During this time, the Tenant was about to move in (Section 8 / CHA) and thats when everything got lost in translation. We had to get certifications for a few things and fix up here and there. My new PM has reached out to the potential tenant, but they haven't called back. Guess we may be moving on in the next week. First house down, definitely not the best scenario, but thats not stopping me.

0 Reply

Patti RobertsonBusiness Member

Property Manager · Virginia Beach, VA · Member since 2016 · 2k+ posts · 2k+ votes

7y

@Jason Cory - I love this post. Very insightful and thought provoking. Thanks for taking the time to type all that! If it OK with you, I’d love to borrow your thread, giving you credit of course, to spur up a discussion in our local landlord club.

757-472-2547

1 Reply

Chris ClothierBusiness Member

Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes

7y

Originally posted by @Yuuj V.:

Hello BP!

At the current moment, I have about $50K liquid.

I already have a house with 25% equity on a $100,000.

The house has not had a tenant since I finished everything, hoping that changes real soon. (since about July)

I am hoping it brings in about $300+ in CF if my math is correct. That is including a PM to manage the property.

I see another house for $90,000, with an $18,000 downpayment, (And other costs ~$30,000) I could grab that house and, if my math is correct, will CF about $300+. (even with a PM)

I am stuck and not sure what I should do.

I am for a market crash, obviously no one can predict the future. So I want cash on hand, cash is king.

But I'm getting FOMO fever (Fear Of Missing Out).

Should I play it safe, and wait for property 1 to get rented so I can be a little on the safer side?

I was planning on saving up $100K for a 'Boardwalk' type property in MA, but thats such a large DP, I feel like I can do better with 1 - 2 other houses. This property is a 'heartland' type property, no where on the coast east or west. (or even south).

This is a good problem to have, but I'm not sure what I should be looking at or if my glasses are getting foggy.

My goal for 2020 is to have $10K passive income from properties, $350K - $500K in net worth.

This is doable, but my mind is going in so many different directions, its to the point of paralysis through analysis.

One property is based in IL, the other potential property is based in OH (I'm a long distance investor). Both are SFH's.

Insight is always appreciated.

Yuuj,

There is no harm in being patient. In fact, many experienced investors will tell you exactly that. Control your FOMO and don't let it control you.

Two quick observations. You listed a goal for 2020 as having $10k in passive income. Is that a milestone? Does the number have any significance? Or is it just a number that you came up with as something you'd like to have. If that is the case, I would challenge you to really consider why $10k and why in 2020. What if it could actually be a higher number one year later or two years later?

When we set arbitrary goals as investors, it can really blind us to what is best. It can lead to FOMO when and anxiety when patience is what you really need. So reading through, it sounds like you are leaning toward being patient and building your funds. I think that is a really good idea rather than buying units to try and meet a goal that may not have any major significance.

Lastly, when people start giving you advice on price swings and bubbles and when the crash comes, you probably want to tune them out. I had to laugh personally when I saw Memphis listed as city that suffers big swings like New York City, San Fransisco, Seattle, etc... Sometimes we all can get caught up in a little in touting our experience and expertise. There is not a single person on BP that can tell you exactly what is going to happen and when. Real estate markets are both cyclical and local. They are constantly moving although sometimes it seems like they are moving at a glacial pace.

Your best bet, in my opinion, is to keep your eyes open, allow your first property to get occupied and begin to function the way you were told all while building your funds closer to the 6 figure mark.

Don't stretch to get started building your portfolio out of fear. Rather, buy out of confidence that you have the exact right property based on your experience and your plan to reach your goal that you set with methodical long-term thinking.

Best to you!

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3 Reply

Yuuj V.

OP

Over the Rainbow · Member since 2016 · 65 posts · 35 votes

7y

Originally posted by Chris@Chris Clothier:

Yuuj,

There is no harm in being patient. In fact, many experienced investors will tell you exactly that. Control your FOMO and don't let it control you.

Two quick observations. You listed a goal for 2020 as having $10k in passive income. Is that a milestone? Does the number have any significance? Or is it just a number that you came up with as something you'd like to have. If that is the case, I would challenge you to really consider why $10k and why in 2020. What if it could actually be a higher number one year later or two years later?

When we set arbitrary goals as investors, it can really blind us to what is best. It can lead to FOMO when and anxiety when patience is what you really need. So reading through, it sounds like you are leaning toward being patient and building your funds. I think that is a really good idea rather than buying units to try and meet a goal that may not have any major significance.

Lastly, when people start giving you advice on price swings and bubbles and when the crash comes, you probably want to tune them out. I had to laugh personally when I saw Memphis listed as city that suffers big swings like New York City, San Fransisco, Seattle, etc... Sometimes we all can get caught up in a little in touting our experience and expertise. There is not a single person on BP that can tell you exactly what is going to happen and when. Real estate markets are both cyclical and local. They are constantly moving although sometimes it seems like they are moving at a glacial pace.

Your best bet, in my opinion, is to keep your eyes open, allow your first property to get occupied and begin to function the way you were told all while building your funds closer to the 6 figure mark.

Don't stretch to get started building your portfolio out of fear. Rather, buy out of confidence that you have the exact right property based on your experience and your plan to reach your goal that you set with methodical long-term thinking.

Best to you!

@Chris Clothier,

Thank you!

Your words really put things into perspective for me.

I just finished Grant Cordone's "The 10X Rule" and put a few goals together for 2019-2020, 2022 and 2025 and 2030.

I work overseas, and like everyone else, I want to escape the rat races, but more so, I want to build my own empire like so many BP members have. GC really opened my eyes and made me think of big goals. But what I didn't think about was goals vs milestones. I set a pace for myself and said I'd like to have $10K passive income because its attainable within a years time, atleast I think, being in my situation. The long term (10 years) is to reach $500,000/year in passive income (I'm very conservative on that number, I think I can reach $1M). I kind of broke it down and said to myself as a challenge, to have $10K by the end of 2020. If I could reach that, then my next goals would be $25K in passive annual income. and from there it snowballs. (in theory on paper :P) Right now I'm hovering just below $2.5K.

Yes, I'm starting to realize that I should be patient and build my cash position for when deals appear. Good point on how to build my portfolio, through confidence and not out of fear or FOMO. I'm all about taking risks, not really risk averse. I just sometimes get tunnel vision and want things now, now now!!!

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Buy new investment or hold off

Buy new investment or hold off

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