2 SFH rentals, no loans. Next move???

Question

To start off I have watched the majority of the BP podcasts as well as other investing and real estate podcasts so I have an idea of what my options are as to what my next move is going forward. I'm looking for your opinions as to what your moves were or would be in my position.

Currently I own to SFH worth roughly 65k and 75k. Both are rented out and cash flowing great as there are no loans on the properties. Ultimate goal is to do this fulltime. Any input would be greatly appreciated

Travis Biziorek · Answer

The obvious next step would be to finance these properties yesterday. You can pull out $105,000 and use that to buy another ~$400,000 in properties. Detroit is great if you approach it intelligently. I have 10 doors there and have done extremely well with them.

Scott Trench · Answer

I think you start with the end in mind. What is the end goal? I'll give you two cases and see what you think from there:

Case 1: I want a boring, easy, methodical, slower, but stress-free path to financial freedom.

In this case, just let the cash flow from these properties, coupled with any savings you make in your personal life/job/business compound, and keep buying paid off properties. You don't have to care what the market is doing. You don't have to care if prices rise or fall, you can self-manage, and know that in good times and bad, you will have a relatively stable source of income that might vary by a few percentage points, but probably won't give you any trouble. Maybe in 5-10 years you have 5-10 properties, and can chill.

Case 2: I want to maximize my yield and build wealth as rapidly as I can, without taking crazy risk:

In this case, you can refinance the properties, likely pulling out $100K+, and use that as the down payment on multiple additional properties, or larger multifamily properties in your area.This would increaese the effects of leverage on the portfolio (compounding returns positively in a growing economy and negatively in a recessionary environment), but over time be highly likely to build more wealth, faster, with some added stress and the need to more closely  manage operations in a much larger business that in initial years likely won't produce as much cash flow.

Case 1: Easy, slow. Case 2: More Difficult, but faster.

Jon McCarron · Answer

Hi @Jacob Graham

Like many others have said so far, I would put loans on those properties through a cash out refinance. Use the cash from those two homes to buy your next property, all cash (just going off of what you had put for your current properties values, it seems doable). Let the property(s) season according to your lender's criteria, and then put a mortgage on those properties and repeat. You can keep using that cash you have pulled out to continue. If you have a w-2 job, I would hold on to that until you have decent cash flow to live off of.

You are in the perfect set up to start BRRRRing. BP put out the BRRRR book by David Greene, check out the bookstore.

Good luck!

Jon

Drew Sygit · Answer

@Jacob Graham

Leveraging money via loans will allow you to grow faster, just don't get in over your head!

Also, you might want to follow the "Deep Dive" series we're doing on our BiggerPockets blog about Metro Detroit cities, City of Detroit Neighborhoods and comparing Metro Detroit to other hotspots investors usually consider:

https://www.biggerpockets.com/...

Theresa Harris · Answer

It sounds like what you are doing works, so why not repeat it?  I'd suggest running numbers on a slightly more expensive home (eg $100K) where you could get a mortgage.  It will cut down on your cash flow, but your tenants are paying off the mortgage via their rent and it takes less money to get the houses as you just need the down payment.

Josie Brown · Answer

Hi Jacob! Detroit is a great market to invest in. I'd be happy to point you in the right direction and help you build a team here.

Jacob Graham · Answer

I have intentions on going route #2. The issue I have seem to run across is a few of the banks I've spoke with don't like to Refi anything that's under 75k in value. I'm sure the answer is to just keep calling more banks and lenders until I find one  that will. But for my area I have run across that.

Jacob Graham · Answer

Seems many investors in the forums are hunting Detroit. How would one go about looking for the areas that have a more favorable market and ones to avoid?

Jacob Graham · Answer

Thanks for the advice. I have looked into Detroit as an option. I would be new to the process of finding and hiring a property manager or management company as I'm currently doing all that myself as of now.

2 SFH rentals, no loans. Next move???

Most Popular Reply