First off let me thank everyone for the great posts and replies. I have learned so much over the last few weeks by reading and researching the information found on BP. What an incredible resource! Briefly about my real estate profile: I have three SFH rentals in the northern burbs of Chicago, and one in the South Loop.
After being inspired by several posts on BP, I wanted to see if I could get an infinite return on an investment, so took a HELOC on my primary residence and put $80K down on each of three $200K SFHs. So I have three $120K mortgages locked at under 5%, plus the variable HELOC and the mortgage on my primary residence. The suburban properties rent for just over $2000 each, so the rent pays all the expenses including taxes, plus I have a couple hundred dollars positive cash flow from each property each month. All caps are around 11.4%. Not great but not bad for my first EDUCATED foray into investing.
I see - I study - and it works!
Now I'd like to enlist the wisdom of the members to solve this complex equation. The unit in the Loop was purchased with cash for $200K several years ago (before I found BP), and is now worth around $320K. It's currently renting at $2200/month. Since there is no mortgage, I use the entire rent to pay HOA assessments and also a part of the mortgage on my primary residence. However I have not been able to increase the rent fast enough to keep the cap above 10%.
I think I can do much better with approx $300K equity in that property, so I'm going to sell the unit in a couple of months. Keeping in mind I need about $1500 cash flow to supplement my primary residence mortgage, I'm trying to figure out what to do. Do I put $50K down on 6 more SFHs? Can I put the $300K down on a $1M multifamily investment? What if I pay $150K cash for a SFH that I can rent for $1500 to satisfy the cash flow requirement, and then I'll have $150 left to put down on either SFHs or a smaller multifamily? Notes? Land banking? Regulation A+ crowdfunded commercial real estate?
Having had success with the three SFHs has given the confidence and the appetite to do some bigger deals. I've read all of Brandon Turner's articles on multifamily and that is the way I'd LIKE to go. Just wondering if I can get enough cash flow out of that type of investment - after the 50% rule - to satisfy my $1500 requirement for my primary mortgage. I'd be interested to hear your thoughts, and also which parts of the country I might execute the suggested strategies - some markets are not amenable to some strategies. For example - I've been trying to do some assignments in the northern burbs, but prices are too high and deals are hard to find. Even for buy & hold, prices are getting high enough that it's difficult to find properties where the number work.
Thank you in advance for your time and kind consideration. I can't wait to hear the feedback.
Wow! Reading your experience was quite a pleasure. I think your idea of getting into multi-family units sounds great. Most of the investors I know end up getting into MFH eventually...especially if you can get a 3 or 4 flat. As a fellow user at BP and a Realtor, I’d love to offer you some comps that you might find helpful.
Have you thought about some Southside suburbs or even some areas in the city?
Hi May, and thanks for the reply. I'm looking to stay out of the city as they make it tough to be a landlord. Also, looking for something more than 4 units - maybe 6+. In any case, I do have a realtor who I'm working with and I wouldn't want to engage multiple agents which might cause conflict of interest.
@Atul Kaushal make sure you look into doing a 1031 exchange on the property and roll all of the money into new property tax deferred
Completed the deal about a year back and was able to use the 1031 exchange. Thank you for your input!
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