Seeking Advice on next steps in building Real Estate Portfolio

9 Replies

I'm a young real estate investor seeking the advice of experienced real estate investors to determine my next steps in building my real estate portfolio.  I've outlined my situation below. Any advice, comments, etc. are much appreciated.

I currently own 3 single family residences, two of which are rentals.  I move frequently, so I buy a home every time I move and rent it when I leave.  My goal is to build up a cash flowing real estate portfolio in the next 8-10 years, so I can leave my current profession and transition to investing full time.  When I hit the 8-10 year point, I would like to be generating at least $10K per month in real estate income.  I'm open to different real estate strategies whether it be flipping, buy/hold/rent, expanding into multifamily, venturing into buying/selling notes, or other strategies. Thus far, the rentals are not cash flowing, however they are accumulating equity with minimal overhead expenses.  I have capital available to invest in another home, but I'm trying to determine if I should pay down my current mortgages, buy another home, expand into multi-family, or consider other options I'm not familiar with.  I'm also getting close to 4 mortgages and open to other financing strategies that will help me move forward.  Ultimately, I'm trying to lay a smart foundation that will allow me to reach my 10 year goal.  All options are on the table.      

Home 1 is 3 bed/2 bath split level home.  It has been rented for 8 years at $1250 per month and was appraised in January for $155K as an existing rental.  I still owe about $100K.

Home 2 is 3 bed/2 bath single story home. I bought it brand new in 2010 for $174K and current market estimates indicate it may be worth $190K.  Just refinanced it and owe 160K.  It's been steadily rented for the last 2 years at $1450 per month.   

Home 3 is a 3 bed/2 bath single story home.  I bought it for $220K and owe $213K.  Current market estimates place it at $230K-$250K.  It's currently my primary residence, but I plan on renting it summer 2016.  Comparable rentals in my area indicate I should be able to get $1600-$1700 a month.  Demand for homes in the area is increasing and the supply is limited, so I suspect this home will be a great rental in the future.

If you were in my situation, what would your next steps be in building your real estate portfolio?  Do I pay down the existing mortgages (all in the 3% range)?  Expand the portfolio with other homes?  Buy a multi-family unit? Do something else?  

Jeremy

@Jeremy L. I love the ambition and the clarity you have. If I were you I would think about a multifamily, I currently own 92 units and have accepted offers on 217 units. I started in the single family world but realized with economies of scale multifamily was a better option, for me.

The time spent on the single family homes, with the same time spent to find the right multifamily you can probably get a larger multi to produce the same amount of cash with less downside if a tenant moves out. I would love to chat and maybe I can explain or show you some ways to go about finding the right deal.

John,

Thank you for taking the time to respond to my post and offer your advice.  I really appreciate that!  Interestingly, my intuition has been telling me go multifamily as well, so your advice seems to be confirming my gut feeling.  Additionally, my readings lately have been promoting multifamily for the same reasons you mention, so all the more reason to go in that direction I think.  I'm anticipating moving again in less than a year, so I'm considering buying a multifamily to live in one unit while renting the other unit(s).  Because I'm still starting out, the financing options seem to be more advantageous when taking this approach.  

Do you have any recommendations on building a 10 year real estate investment plan? Mind you, I'm doing this on the side with a full time job. My thought's are I should be buying at least 1-2 properties per year. I've been leveraging conventional and VA loans, but concerned I won't have enough equity built up in 10 years to realize the desired amount of cashflow. As such, I've considered paying off at least one property to use the cashflow for others. I'm largely dependent on property managers, because my properties are in 3 different states and existing demands preclude me from being able to do it myself. I will have to continue using a property management service to make it work with a multifamily unit as well it seems. Like everyone else, I'm always looking for another deal and I would welcome any advice you might have to offer when I make the next buy.

Once again, I really appreciate you taking the time to respond to my post.  It's great to have the advice of a pro...something I have not had thus far in my foray into real estate.  

Jeremy

@Jeremy L. I would love to help you build a 10 year plan! I think you have the right mind set, now just have to get the properties locked down to hit those goals. If you have some time and want to chat, let me know.

@John Cohen

John,

After searching in my area for multifamily properties I became a bit discouraged when I looked closer into the numbers.  I am referring to 2-4 family properties and honestly I didn't even consider going big until very recently.  When it comes to the larger deals do your properties cash flow a tremendous amount or do they tread water until they are paid off at which point returns can be realized?  

The 2-4 family property strategy just isn't for me because it seems that one will in a best case scenario only build equity and not cash flow significantly until it is free and clear.  Does this change when you have many units in one building like you have? 

@Steven Guzzo it really depends on a couple things; location, market, stable or value add deal. 

NY - it is very hard to find cash flowing properties because the market is so strong. 

Value add - depending on what needs to be done, cash flow will happen when you clean it up.

Stable - deals should cash flow very strong depending on location.

I am buying a property in FL right now that has a 13% cash-on-cash at takeover. I don't really look at properties that need some heavy lifting unless then will return 12% cash-on-cash. Stable deals you should look for 7-8% minimum. So to quickly answer my stable deals do cash flow really well and value add will when done. I hope that helped.

@John Cohen Thanks for the offer.  At some point, I'll probably give you a call, but not ready to do so just yet.  Thanks to everyone else for chiming in.  Good dialogue and great info.

Jeremy 

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