Veteran opinions wanted for first SFR rental! Thanks!

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Veteran opinions wanted for first SFR rental! Thanks!

Ben S
Real Estate Investor · Jacksonville, FL · Member since 2010 · 43 posts · 3 votes

I think I may have posted this response in a different category and didn't want it to get swept away, especially if it may be in the wrong thread! :)

As a newbie, I've finally obtained the funds to safely invest in my first buy & hold - So this month I've been doing nothing but debating over myself on two decisions - talk about feeling like a slacker compared to you veterans out there!

Just debating two directions, which I would aim to do by the end of the year (give or take depending on when a good deal happens in my area!):

1) Based off experiences with the type of SFR to invest; I'm thinking of moving my wife and I into a nicer suburb (housing ranges from 120k+, rents in the $1.2k-1.8k range) - but won't make the jump until I find something around 100-120k so I can rent it out in the future if I chose to move.

If I did this, I would rent out my current townhome (purchased for $75k & built in 2003, rents for about 950-1100 in very desirable location in Jacksonville)...

Option 2 would be based on trying to leverage more cashflow to help feed future investments:

2) stay in my townhome, and drop 25% on a SFR around the 70-80k range that would rent for around $800-1k a month, but the homes in these areas would be ones built in the 1970s concrete block style.

I feel like former option would best my investments for building wealth as I do not currently depend on real estate cash flow as a source of income.

On the other hand it feels like having a starter investment that yields more cashflow would help seed future investments.

Thoughts are always welcomed!

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Rich Weese
Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
14y

I would urge you to make the wife happy, get out of the condo and take advantage of the owner occupied rates first and buy an owner occupied home. It requires low down and leaves reserve funds that you could still buy an investment property based on certain other items.
1. Do you want to do more than one investment?
2. Is your job/income fairly safe?
3. Are you willing to take the risk and young enough if it fails?
4. Do you have a long term strategy and plans?
5. Do you NEED the cash flow to live on?
6. Don't buy another condo-imo.

Theses are questions you should consider , imo, before you make a decision.

Thanks for the birthday wish and good luck. Rich

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  • David Beard
    Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes
    14y

    Hi Ben -- as far as your current townhome, what you paid in 2003 is not relevant for determining if it's a good rental today, only the current market value. Think about opportunity cost. In other words, if you didn't own your current townhome, would you select it as a rental property if you had to purchase it today at its current value? If the answer is no, then at least consider selling it (you'll of course need to factor in the costs to sell it, the cost to buy a new rental property, and the cost to give up the low owner-occupant rate on your current loan, so these costs may well tip it in favor of keeping the townhome, just throwing it out there).

    In the price range you're talking about (70-80k), you should be able to locate deals that would provide a gross rent yield of at least 1.5%/mth. Jacksonville should offer up these deals.

    It's a great time to upgrade your personal residence right now to something you'll be happy with for a good while, with rates at just 3.50% on the 30-yr. I'd go with the 30-yr, though, and finance the most that you can, to give you more investment flexibility and improve your debt-to-income ratios. I'm just not personally a fan of buying a personal residence with an eye toward it being a rental later. Buy something that is truly comfortable for your family, in an area that you love, then buy rentals in areas where it makes the most sense.

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  • Rich Weese
    Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
    14y

    I would urge you to make the wife happy, get out of the condo and take advantage of the owner occupied rates first and buy an owner occupied home. It requires low down and leaves reserve funds that you could still buy an investment property based on certain other items.
    1. Do you want to do more than one investment?
    2. Is your job/income fairly safe?
    3. Are you willing to take the risk and young enough if it fails?
    4. Do you have a long term strategy and plans?
    5. Do you NEED the cash flow to live on?
    6. Don't buy another condo-imo.

    Theses are questions you should consider , imo, before you make a decision.

    Thanks for the birthday wish and good luck. Rich

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  • Ben S
    OP
    Real Estate Investor · Jacksonville, FL · Member since 2010 · 43 posts · 3 votes
    14y

    Hi @David Beard - Sorry if my post wasn't clarified - The townhome was built in 2003, but I purchased in 2011 for that price, as townhomes in the area range from 85-100k for the same model/size as mine. :)

    So far all the properties I intend to rent out would be properties I wouldn't mind living in myself - for the opportunity standpoint (gives me more options and keeps a type of 'standard of living' to match the tennant base I hope to acquire - less maintenance!)

    Some good insight - I guess my general question would be on whether or not to invest in the more cashflowing, but older properties to start - or to go the higher end route of getting the nicer homes under my belt that may not cashflow as nice (but because these are newer, nicer homes they would require less maintenance than the older cashflowing homes, and tennant pool would be a little more desirable) - if that makes sense?

    I could go both routes, but just to get the jump start on things I purchased my townhome with intent to rent later on, so my decision is just a matter of the type of SFR is best to start with.

    I'd imagine refi on a newer, higher priced SFR (100-120k as opposed to 70-80k) would yield more cash to invest in more properties, and better appreciation forecast.

    More input is highly valued - keep 'em coming! Thanks!!

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  • Ben S
    OP
    Real Estate Investor · Jacksonville, FL · Member since 2010 · 43 posts · 3 votes
    14y

    Rich Weese - Thanks for your input - I had the same thoughts because I want to take advantage of the low rates on multiple rentals in the future.

    My goal is indeed to get out of the HOA type communities to favor the residential housing to better my investments..

    To answer your questions:

    1. Do you want to do more than one investment?
    Yes - I plan to play monopoly in the sense of acquiring a decent number of rentals that I can eventually pay off, just like the typical buy/hold investor to live comfortably. Seems like putting more of my focus on the mid to higher end rentals would be much safer than investing in what's already 20-40 years old...

    2. Is your job/income fairly safe? In this economy, I would like to say my job/income is safe. I have no other debt other than my mortgage of roughly $600 a month (which is a ton cheaper than rent in the area) - I'd eventually sell my townhome in the next 10-ish years or so - or when the market favors selling, so I can dump the capital into more SFRs...

    3. Are you willing to take the risk and young enough if it fails?
    I'm currently 27 and will turn 28 in the next few weeks myself - I feel like if I don't take advantage of higher risk now that I'll be kicking myself in the future for not being more risk-averse and thus improving my chances at wealth!

    4. Do you have a long term strategy and plans?
    Long-term strategy is very modest for today's timeframe of thought; wanting to self-manage about 10 or so F&C houses and live off a modest income (I'm very conservative and don't need much income to make a happy living) - although that's not to say my frame of thought will change as I continue to invest. But that's where I stand for now, I hope that's a good decision to say the least.

    5. Do you NEED the cash flow to live on? To answer based off my conservative viewpoints, I do not currently need cashflow from real estate to live on - my current income is sustaining enough. I did question though on whether it's worth investing in the lesser properties that do have some cashflow now to better my chances of seeding future investments - but not sure on that since expenses may eat up that cashflow given those properties are older (as aforementioned 70-80k properties built in 1970's type, or cinderblock housing)... any thoughts for this one?

    6. Don't buy another condo-imo. You're correct on that - I want to avoid the condos although 'technically' my townhome I own the land under it - but nontheless the townhome I'm living in now - they sell like hotcakes - last house that was on the market was only on the MLS for 4 days before being contracted - it's because the specific location I'm in is close (walking distance) to literally everything you need - but it's a bit quaint in size (1200sq ft - I'd like more space in the next home I move in, and more driveway space!)

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  • Rich Weese
    Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
    14y

    Ben- I LOVE YOUR ANSWERS!!!!! Your thought process is definitely on a great track. Let me take your replies one by one.

    1.I would've replied exactly the same. If you research my posts and threads on BP, you'll find I've stated the same many times. If you find good deals on both older and newer properties-buy the newer.

    2. No details necessary-just a yes or no. Does the IRS keep ANY of your taxes witheld? This answer also helps to determine which route to go.

    3. I agree.

    4.Excellent strategy- In fact I have a chapter in my Book called One a Year For 20 Years. It explains your goal of owning 10, but enlarges it to 20.

    5.I'm not convinced that any minimum cash flow would really aid buying more properties and the added expenses for older properties could eat up any gain.

    6.Because of HOA fees, a condo will NEVER be free and clear. As they get older, the "special assessments" can eat you alive and impossible to plan for, imo

    I have been asked, literally, hundreds of times to help mentor someone and have 100% of the time said no. I love your answers and thought process and would love to be available to mentor or assist you with thoughts ANYTIME at no cost. Also, if you want to PM me an address, I'll send you a Book you might have fun with....

    Rich

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  • Ben S
    OP
    Real Estate Investor · Jacksonville, FL · Member since 2010 · 43 posts · 3 votes
    14y

    Rich Weese - Thanks for the response - I love that I'm getting some good feedback from one of the pros on this forum! :)

    1. My gut feeling was telling me to stick to the newer properties - even my wife told me that she'd prefer being able to own properties that looked nicer/newer (And this is coming from a non-investor type, but I value her opinion as my future involves having her work with my investments - so that's definitely a plus.)

    2. Unfortunately - yes I've been paying roughly $3500 a year in taxes, leaving me with about $500-1k (give or take) as a 'refund'.. I read on your site and previous posts about your viewpoints on the gov't and taxes.. I have to agree with you there too. It'd be nice to get to the perspective of investing to avoid taxes. I'm just not there yet since I have to get the ball rolling on starting up the investments!

    I took the hit on my small 401k and cashed out of it because I knew if I waited until later to do so that I'd be taxed on a much higher amount. So now I have this cash sitting in the bank at the disposal of the next property to invest (or move into, that is if I rent my townhome out). Given I could've rolled these small funds into an IRA, I just felt a little more comfortable to have this cushion in the bank at my disposal.

    My current job though I've opted to stay with their company match @ 4% for the time being - free money imo!

    Skipping to 5: I can see that too - based on the previous posts from other investors here, it's mentioned that unless you're really good at managing your properties up front, that cash flow gains can be potentially lost to repairs and maintenance on older houses.

    Just to start out it just feels like it makes more sense to go with something newer..

    6. Yeah doing more research from this site has opted me to avoid the HOA communities more and more and get into the SFR field.. and as a result I've developed a proper exit for my townhome in the event that I am prepared to sell it. It's in perfect rental-market material now, so I will take as much advantage of renting it out to get the experience (this is if I take the moving into a newer SFR route) and will eventually liquidate that into a better asset given 5-10 years from now, pending the market)..

    Thanks again Rich for your advice and input - I consider your knowledge to be priceless as you're one of the living proof of success from scratch!

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  • Ben S
    OP
    Real Estate Investor · Jacksonville, FL · Member since 2010 · 43 posts · 3 votes
    14y

    Rich Weese - Forgot to mention - PM Sent for address - Thanks again!

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  • Rich Weese
    Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
    14y

    Ben- I spaced this off!I'll be home tomorrow. If the book hasn't been sent, it will be sent then. Sorry. Rich

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