Looking For Direction-Please
Rental One- 3/2 1500Sft- Rented for $1500.00 We have a mortgage - After repairs, Capex, vacancy, and PITI- cash flow = $575.00
Rental Two- 3/1.5 1300Sft- Rented for $1500.00 Owned free and clear- After repair, Capex, vacancy cash flow =$1074.00. With mortage we would still cash flow $426.00. We could pull out at least $97,500.00 with Refi.
Rental Three- 2/1 650Sft-Rented for $1000.00. Owned free and clear- After repair, Capex, vacancy cash flow $798.00 with mortage we would only cash flow $202.00. We would be about to pull out at least $60,000.00 with Refi.
We have reserves of $5000.00 on each property already tucked away in bank accounts we don,t touch.
I
guess Im asking if you could do it all over again and have these
numbers, how would you leverage this money and how would you put it
work?
Thank You in advance.
Without a clearer sense of your goals, it's impossible to advise. Are you looking to retire on this money? pay some bills? make as much money as you can for the sake of making a lot of money?
@Darius Ogloza . My goal would be to use the equity in my properties effectively and as smart as possible to scale. My goal would be to have enough cash producing assets to clear $10,000.00/Month in passive income within the next 5-10 years
@John Matthew Johnston - I don't know what the Cash on Cash or IRR returns look like for you (taking into account the equity buildup), but, if you could borrow against these properties and keep buying more cash flowing assets, or even do Private Lending with that same cash to generate 10% returns, you'd still be earning the 6% gap (borrow at 4% and earn 10%) without any maintenance or repairs or prop taxes etc... Just my $0.02
@Jaspreet Baveja Thank You, your advice is appreciated!
Depending on how "passive" you want passive to be.
A real estate-backed investment fund, with an operator running the investments, yielding 8% requires about a $1.5M principle investment to generate $10,000/mo cash flow. Even then you must monitor your investments. Most have been working value-add plays (taking an apartment, buying low, increasing value through capital improvements and/or raising rents, then refi for a few years, then sell). Mortgage boot will give you some added capital.
If this comes from a rental portfolio, the math for returns means rents - (PITI, property management, capital replacement, loss-to-lease, incentives) = $10,000. If you go by the 1% rule, you need to acquire $1.2M in portfolio value (not net worth).
If you are willing to take on a 2nd full-time job, you can rapidly grow your capital by heavily working your existing funds in private lending. Typical returns can range from 15-22%, depending on local market conditions, without taking on unreasonable risk (gap funding, equity participation, or borrowing from lines of credit). Downside: you have to do your due diligence. Failure to adequately vet the borrower, the property, or the exit in light of market conditions can eliminate your capital position. If your due diligence is too strict, you can alienate your pool of borrowers. Failure to oversee borrower's construction projects can create additional waste and eat your profit margin.
A variation on private lending is to lend capital to local hard money lenders or loan brokers. Some pay 8-10%, more or less, and present you with deals to loan on. Another variation is to put your capital with a debt fund. Works like an apartment syndication, but the funds lends to HMLs instead of you. I have one in TX. There are several of these around. I'm sure there's one in PA. Based only on what you posted, sounds like you might qualify as an accredited investor and that's appealing to syndicators and fund managers. If so, good news/bad news is that you can invest in anything you want without restriction. It also means you have to figure out if it is a good investment yourself (with your advisors).
Then there's several crowdfunding platforms that let you lend to RE backed deals.
Good luck!
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Attorney
- Ehlert & Associates PLLC
@Jerel Ehlert Thank you for taking time to post all that helpful information, I would like to clarify, I may have misused the word passive, I throughly enjoy real estate and it's a true passion of ours, we enjoy the Hunt, Reno process and even being a landlord and managing our properties, we are leaning more towards either using leverage to buy many SFR or Multi-Family. We just want to use leverage effectively and not look back and know we could of scaled faster or used our money smarter if we would of used another strategy. Again thanks for our reply.