Am I on the right track??? First investment property

7 Replies

First time post here. Looking forward to gaining as much knowledge as possible.

Last July I purchased my first investment property. It’s a 3 family (3br, 1br, 1br). Newer roof, siding, windows. It’s an early 1900s house. Foundation recently repointed. So most of the major mechanical items are done. Will need a boiler within 5 years, other 2 boilers have 15+ years left in them.

I purchased the property by taking out a home equity loan (10 year) on my primary residence for the down payment and taking out a 30 year mortgage.

After PITI, my positive cash flow is $450/month.

2 of the tenants I inherited and have been there for 10 years. Rents are around $100 below market, but they pay on time every month and I rarely hear from them so I’m good with that.

My goal for this house is to let the positive cash flow account build and when something needs repair or replacing, I can just pull it from that account. I’m trying to not use personal funds for this house at all. I have a feeling it won’t go completely as planned due to the fact that the 2 inherited tenants apartments could use a facelift and if they move out in the next couple years, the positive cash flow account will not have built enough income to cover everything.

SO.....I would like to hear from the veteran BP members. Am I on the right track? Do I have a good plan??

The numbers all seemed to make pretty good sense with all the scenarios I played out and how the numbers worked out over 30 years including improvements and repairs.

My plan down the road to purchase another......worst case scenario I wait 3 years. At that point I will have paid down my home equity and the mortgage on my primary residence to refi the home equity and pull out enough for another down payment on a multi family.

So once again.....good plan????

This is a great plan @David Sheridan ...as long as it meets your goals! The 10 Step guide or process I follow took some time to develop but helps me achieve my goals. Figure out why you want to invest and that’ll tell you all you need to know. 

@David Sheridan , by mentioning "the positive cash flow account", you mean your HELOC, right? [Or if not, why not?]

Next question: Did you bag a "bargain"? ie. Why might you have to wait three years to refi? ie. You shouldn't just be relying on your principal pay down over time.

Yep, you're on the right track! Congrats on making such a good start...

By positive cash flow account, I essentially mean my bank account that is specifically set aside for this multi family house. All positive cash flow goes into this account, all bills for the house gets paid out of that account. 

I understand I shouldn’t rely solely on principal pay down, but I’m trying not to use personal funds to purchase and maintain the property (or future properties) which means allowing the positive cash flow account to build as a safety buffer. 

Without posting full number disclosure on though property it is impossible to assess if you are on the right track or not. Stating that you have $450 in positive cash flow is not a significant point of reference. It is very rare that a new investor has the skills to actually determine what their real cash flow position is long term. Reality is that cash flow on a property, like appreciation, is never known, only guestimated, till the day the property is sold.

I actually forgot to add one vital piece of information.....right now I am positive cash flowing $450 a month. That is including paying the home equity loan on my primary residence. After 10 years, that will be paid off and I will be looking at $850 a month positive cash flow (assuming no rent increase).

I paid $190k for the house. I did a kitchen reno in one of the 1 bedroom apts, ($4,000). The property later appraised at $215,000.

After 30 years, I will  have (on paper) brought in $258,000 in positive cash flow. I figure in that 30 years I will replace the roof, 3 kitchens, 3 boilers, a driveway, 4 bathrooms and other room updates. Rough numbers put all of those expenses between $85k-100k.

Currently I am getting $600, $725, $1000 in rent. Those will go up if and when the 600 and 1000$ tenants move out and the apts get a remodel.

I feel as if my numbers are pretty on track. But I figured the more I can put on the table for others to see, I can use their input from their past experience to help me learn and excel in my investment endeavor!

Thanks All!

Sounds great. I would also suggest that a "cost of living" increase on the long term people would be reasonable. 2-3% for the year will probably not scare them away. My plan with my long term tenants is to write that small step increase into the lease, so they know it is coming and can plan on it.

Originally posted by @David Sheridan :

By positive cash flow account, I essentially mean my bank account that is specifically set aside for this multi family house. All positive cash flow goes into this account, all bills for the house gets paid out of that account. 

I understand I shouldn’t rely solely on principal pay down, but I’m trying not to use personal funds to purchase and maintain the property (or future properties) which means allowing the positive cash flow account to build as a safety buffer. 

I wasn't suggesting to use your funds to pay it off quicker. But, I am suggesting that all your cash flow should go back into your HELOC, rather than a separate account. Can you guess why?

What I was alluding to by suggesting you shouldn't just be relying on your cash flow to increase your equity quicker, is: you should be buying significant amounts of extra equity - on day one!

From your subsequent post, it looks like you (only) have about 8%* equity that you're not paying for. Next time, I suggest: aim for a lot more. Try to become an investment machine, ok? Cheers...

[* 8% equity might as well be zero, because you must account for exit costs!]

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.