Best practice for expanding from my 1 rental property
I wanted to post this on here to get some advice or get the ball rolling on what I should be looking at to grow my portfolio. To give a little story of where I am at, I currently live in Omaha, Ne and moved here for my job, currently renting. I own a condo that I purchased at the age of 19 and have been successfully renting out for the last 2 and half years. I cash flow under $200 a month on the property. Loan amount left on the property is $117,000 and the property is estimated around $180,000 currently.
I am living in Omaha, NE currently renting an apartment for the last year as it was on short notice and wasn't in the spot to buy property. I am currently looking to get into house hacking finding a duplex, triplex or quadplex, possibly even a single family property that I could add a mother in law suit. Financing is where I am seeking to gain the some advice. I have little cash reserve to put down on other property, I do make fairly great money and could save enough for a down payment in 6 months. I also was exploring the possibility of a HELOC or even selling the property and doing a 1031 exchange. What would you guys do in this situation? Would you wait 6-12months to expand the portfolio, would you take out a HELOC and use that to purchase a property or would you sell current property and put into a bigger asset?
Thanks for you time guys anything is appreciated.
Hi Trevor, thanks for sharing. Do you have a reliable method of running numbers for future acquisition? If you're able to sell, and 1031 into a multi-family that produces a greater return, I would go that route. If the return is less, than keep the condo, and save for the next purchase. I would base my decision on rate of return, followed by lifestyle considerations. Will the condo be a pain to manage, or is it going smoothly and allowing you to focus on your priorities?
If you decide to keep the condo, I would at some point take out a HELOC for future purchases and emergencies.
@Trevor Seely I can show you what some 1031 exchange clients have done in the past and talk you through some options. On the surface I would buy a townhouse style fourplex and rent out the other 3 units and live in one unit, rent out your bedrooms as well and then refinance in a year and buy another. Or, you could also 1031 exchange out of it and buy a larger complex if you are tired of having roommates and living next to your tenants. Best way to scale quickly is through buying right and using a 1031 exchange.
-
Real Estate Agent Kansas (#00245860) and Missouri (#2019043249)
- http://www.xchangecre.com
The timing will depend on what you think your best growth option is. Right now, you are positive $200 a month with the condo but negative whatever your rent is. If you think the condo will appreciate better than say your multi-family options or your house hack options, I might continue to hold even though I am losing money from the rent I have to pay to live. In that case, save up and buy the house hack option in 6-12 months and hold the condo for a HELOC or sale in the future when it's appreciated more.
If, however, I look at the rent amount I am paying and I don't think the condo is really going to go very far with appreciation compared to my other options in the house hack/multi-family space, then I would look into selling the condo now to fast track my purchase. I have a feeling the second option is the way you will want to go since you can probably find a multi-unit or house hack situation that not only cash flows at least as well as your condo ($200 per month positive) but also cuts out your rent expense completely while also itself appreciating, paying down debt, etc. In other words, if my rent is $1000 per month, then my net with the condo is negative $800 per month plus whatever appreciation and debt paydown you are getting with the condo. If I can find a house hack option that eliminates my rental expense and at least covers my housing expenses, I am about $800 per month better off than with the condo. So unless I think the condo will appreciate $800+ per month better than my house hack options, getting rid of it is probably the better play. The biggest factors to me would be how much is my rent because this is a drain on your finances without providing any growth, is the condo located in an area that I expect to appreciate more than other areas I can invest in right now, and do I think I can find a house hack option that would cover my expenses better than my rent/condo combo I have right now.
A final consideration is could the equity you have in the condo spring board you into a better producing product in the near future that you couldn't get otherwise. In other words, look at what you can buy with your expected savings after 6-12 months versus if you sold the condo now and bought now versus what you could buy with an extra $50-60K down and those 6-12 months in savings. If one of those options gets me from a small return into something with a much bigger return, say it allows me to buy more units or add on to better force appreciation than just saving or just selling, then I might also hold the condo for now to sell it in 6-12 months while I save.
Best of luck!
Quote from @Alex Olson:
@Trevor Seely I can show you what some 1031 exchange clients have done in the past and talk you through some options. On the surface I would buy a townhouse style fourplex and rent out the other 3 units and live in one unit, rent out your bedrooms as well and then refinance in a year and buy another. Or, you could also 1031 exchange out of it and buy a larger complex if you are tired of having roommates and living next to your tenants. Best way to scale quickly is through buying right and using a 1031 exchange.
Yes I’d love to see what some of your clients have done
Quote from @Charles Burgess:
Hi Trevor, thanks for sharing. Do you have a reliable method of running numbers for future acquisition? If you're able to sell, and 1031 into a multi-family that produces a greater return, I would go that route. If the return is less, than keep the condo, and save for the next purchase. I would base my decision on rate of return, followed by lifestyle considerations. Will the condo be a pain to manage, or is it going smoothly and allowing you to focus on your priorities?
If you decide to keep the condo, I would at some point take out a HELOC for future purchases and emergencies.
Great perspective thank you