Let it first be known that I am very new to BP and learning all the time. I guess I am just looking for validation on the approach that I am currently taking in my buy and hold strategy.
In 2009 I had $15,000 and 5 acres of paid off land (worth $15,000) to play with. While looking for advice I made friends with a local real estate agent and told him that I was looking to buy rentals and wanted to know my options. He showed me a few houses that would make great rentals but they all needed a bit of work.
In 2009 I bought a very nice brick (3 bed 2 bath 1200 sq) house as it was being completed for $115,000 in a very nice neighbor hood for $.50 (cents) down secured by a 4% VA loan. My Plan was to pay extra on it and pay it off early then rent it out. Let's call this house 108 Somewhere St.
In 2010 my plans changed when my real estate friend had just built another house right next door for a client that backed out on him and he was wondering if I wanted to buy the house for a deal. I bought my second house in 2010 for $110,000 that was was identical to my first house. I paid $10,000 + put up my land for collateral with agreement that my collateral would be released after 20% was reached. This was put in a 6.5% 5 year balloon note and would not be reported to my credit agency from a local home town bank. Le'ts call this house 110 Somewhere St.
Over the last 4 years I have been putting what I could extra into my 110 Somewhere St property since it has my land tied up and its on a balloon note. It rents for $825 and my mortgage payment is $733, My yearly Taxes are $950 and my Renter's Insurance is $725. The area is very nice up and coming area. They just build a new Wal-Mart about 5 miles away and the house has never been vacant for more than 10 days. I manage the property my self. My balloon note expires in 2015 and the bank has already agreed to refinance me as long as I keep up good payments like I have been.
Currently I owe the following on both properties.
110 Somewhere St = $79,800
108 Somewhere St = $104,000
My new plan was to put all the extra money I can into the 110 Somewhere St property and pay it off. By the end of 2014 I plan to have it down to $70,000
My goal is to pay off the 110 Somewhere Street Property. Once 110 Somewhere St is paid off I plan double up on payments + plus all the extra I have been putting in on the 108 Somewhere St Property.
Once both properties are paid off I can either get another loan using the equity from 110 or and 108 or get another VA loan move it the new home and pay it off via triple payments.
Currently I hold $5,000 in a separate account to account for the unknowns.
I feel that started off very slow compared to other stories on BP but I am thinking hoping that the snow ball effect will continue to grow.
What are your thoughts?
Fine idea, but I would bump up the cash reserves since your exposure is two properties. If you have to switch banks at the balloon point you need options, which cash creates. They might want to hold the land assurance for some reason on the new note (poor appraisal or some other BS), who knows.
It is like monopoly or any business, you can be profitable and still go out of business because you run out of cash at some point, you need insulation against this.
I have been focused on paying almost everything I could to the 110 property.. I will start building my reserve account for future unknowns.
only because you have that known refi coming up. Get passes that and then you can make a lump sum pay down to catch up at that point.
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