Hey guys, what would you do if you had 50 K cash?
1) Pay off your house completely so you would be mortgage free (let’s pretend that’s your mortgage balance)
2) Buy a 250k multi family that brings you 1k per month in cash flow Close to big city (1hr away )
3) buy 10-20 single family ( which is almost the same as The same amount of units Multifamily )that cash flow’s $200 per door , which would roughly give you $2000- 4000 cash flow per month
@Mary Jay, Where in the WORLD are you going to buy 10-20 SFR with
$50k down that cash flow $200 a month? Enquiring minds want to know. ;-)
Hey guys, what would you do if you had 50 K cash?
1) Pay off your house completely so you would be mortgage free (let’s pretend that’s your mortgage balance)
2) Buy a 250k multi family that brings you 1k per month in cash flow Close to big city (1hr away )
3) buy 10-20 single family ( which is almost the same as The same amount of units Multifamily )that cash flow’s $200 per door , which would roughly give you $2000- 4000 cash flow per month
I'd go with option 2.
P.S.
How you getting 20 single family houses with $50k?
The absolute last thing I would do is pay off my house.
Personally i would pay off debt, but I would pay off debt that is at much higher interest rates than my home.
But what if market crashes, you lose few renters and because of that couple of your rentals are sitting empty...you lose your job, and have no money to pay mortgage for those rentals and to pay for your own mortgage?
Would not it be nice to at least have this peace of mind knowing that at least you are not gonna lose roof over your head because you paid off your house?
This is why you have vacancy reserves. Many people seem to be calling their cash flow some figure higher than it is. I set aside 8% per month for vacancy in addition to 5% cap-ex, 5% maintenance, 10% PM (which they take directly), etc.
People laugh when I say my cash flow is between $125-$175/month per SFR. If I simply stated gross rents - PITI as my cash flow, it'd be about $375-$425/month. We all know the latter numbers generally aren't realistic (for turnkey rentals with zero work/involvement on my part). If anyone knows where I can get $200+/month per door with a reputable turnkey company, I'd love to hear from you.
That is smart!
Hey guys, what would you do if you had 50 K cash?
1) Pay off your house completely so you would be mortgage free (let’s pretend that’s your mortgage balance)
2) Buy a 250k multi family that brings you 1k per month in cash flow Close to big city (1hr away )
3) buy 10-20 single family ( which is almost the same as The same amount of units Multifamily )that cash flow’s $200 per door , which would roughly give you $2000- 4000 cash flow per month
I'd go with option 2.
P.S.
How you getting 20 single family houses with $50k?
Well, it was probably my miscalculation...or may be generalization which probably was not quite accurate...
But lets say one could buy one house for 50K then 6 months later refinance if market goes up... Lets say you buy five 50K houses and then in 6 months or a year refinance, we can get at least 10 houses that way... I did not mean to do it simultaneously, I meant within some time frame... Probably not 20 house, probably 10 is more realistic...
P.S. people on this forum are very smart, caught my miscalculation really quick :-)
I hope one day I will be like you guys when I grow up as an investor :-)
Ok, lets say you buy not 10-20 houses with it, but 5, which is also will bring you 1.5k-2K positive cash flow, but those houses are in the middle of nowhere...
I guess what I am trying to ask is:
1) Would you go for 5 houses or 2 duplexes or whatever that bring you 1.5K cashflow in the middle of nowhere (key word middle of nowhere)
2) would you buy one fourplex 1 hour away from a big city that cash flows 1k
I guess what I was trying to compare is would smart people go for:
1) close (1 hr away) to big city property (cashflows 1K)
or
2) a little bit more cashflow from middle of nowhere? (cashflows may be 1.5-2K)
I am asking because I have a dilemma, to buy close (1hr away) from a big city or to buy in the middle of nowhere for a bit more cashflow...
so close to city or middle of nowhere with a little bit more cash flow?
Given that everyone has already hammered home the point that #3 isn't feasible without a greater timeline and a lot of "if's," #2 does seem like a great option. However, I would add that it depends on other factors, such as how you manage risk. Some people strongly prefer to pay off their mortgage even though it doesn't make mathematical sense given that the loan rate (probably 2.75-5%) is much lower than what you should get in return on a good investment. Nonetheless, for reasons of security, paying off a home can be a great option and many of the wealthiest people I know chose to pay off their house before putting any real money anywhere else.
Regarding whether you invest in a multifamily versus several single-family properties, you are likely to have an easier time managing the multifamily property. You also should try to look at your return rates, such as your cash-on-cash return (I realize there are different views on this...so I don't mean to send us off on a new tangent). In other words, look at the potential net operating income (income after all expenses) minus debt and divide that by how much money you put into the deal.
Very interesting scenario to think through. Thanks @Mary Jay!
@Mary Jay, middle of nowhere will destroy you. Older place = lots of capex, difficult to rent, small/bad rental pool, possibly high taxes, expensive pm. Look at Cleveland. ;-) everything I just described.
The absolute last thing I would do is pay off my house.
Personally i would pay off debt, but I would pay off debt that is at much higher interest rates than my home.
But what if market crashes, you lose few renters and because of that couple of your rentals are sitting empty...you lose your job, and have no money to pay mortgage for those rentals and to pay for your own mortgage?
Would not it be nice to at least have this peace of mind knowing that at least you are not gonna lose roof over your head because you paid off your house?
Seriously, If you are worried about all those things happening then maybe you should not be investing in real estate. I have peace of mind that no matter what happens I will find a way to get by.
Use It for down payment on a nice home / remodel money after you purchase a 120,000-150,000$ SFH ,then BRRRR it. Its not Sexy or fast , but it will get you there, and many to pick from in many markets.
The absolute last thing I would do is pay off my house.
Personally i would pay off debt, but I would pay off debt that is at much higher interest rates than my home.
But what if market crashes, you lose few renters and because of that couple of your rentals are sitting empty...you lose your job, and have no money to pay mortgage for those rentals and to pay for your own mortgage?
Would not it be nice to at least have this peace of mind knowing that at least you are not gonna lose roof over your head because you paid off your house?
Seriously, If you are worried about all those things happening then maybe you should not be investing in real estate. I have peace of mind that no matter what happens I will find a way to get by.
Well, some investors hate risk. It does not make them bad investors...Some people follow Dave RAmsey program, pay off their house and then buy and are happy with it...
(I am not one of them, never have enough cash so have to leverage)
But just because someone is not comfortable with high leverage does not mean those people should not invest in real estate...
Everybody has their own strategies...I am just trying to figure out how much leverage I am comfortable with at this point...
Given that everyone has already hammered home the point that #3 isn't feasible without a greater timeline and a lot of "if's," #2 does seem like a great option. However, I would add that it depends on other factors, such as how you manage risk. Some people strongly prefer to pay off their mortgage even though it doesn't make mathematical sense given that the loan rate (probably 2.75-5%) is much lower than what you should get in return on a good investment. Nonetheless, for reasons of security, paying off a home can be a great option and many of the wealthiest people I know chose to pay off their house before putting any real money anywhere else.
Regarding whether you invest in a multifamily versus several single-family properties, you are likely to have an easier time managing the multifamily property. You also should try to look at your return rates, such as your cash-on-cash return (I realize there are different views on this...so I don't mean to send us off on a new tangent). In other words, look at the potential net operating income (income after all expenses) minus debt and divide that by how much money you put into the deal.
Very interesting scenario to think through. Thanks @Mary Jay!
Thank you :-)
I always feel stupid for asking questions like that, so I appreciate you thinking it was an "interesting scenario" :-)
Thank you so much!
Use It for down payment on a nice home / remodel money after you purchase a 120,000-150,000$ SFH ,then BRRRR it. Its not Sexy or fast , but it will get you there, and many to pick from in many markets.
Well, the problem is I already have 2 nice houses that are expensive...
Kind of wanted to wet my feet on a cheaper option...
Plus, BRRRR model needs time, which I dont really have...Plus when I think how much time and efforts I put into my past fix and flips and got only 20-30K for it- it just does not really make sense to me to work so much and take all that risk and stress...
But may be I should think about it...
@Mary Jay, middle of nowhere will destroy you. Older place = lots of capex, difficult to rent, small/bad rental pool, possibly high taxes, expensive pm. Look at Cleveland. ;-) everything I just described.
Interesting opinion..Have you invested personally in midwest? Its seems like everybody is in Cleveland these days...You are probably the first one who said that...Is that opinion based on your personal experience or just something you have observed with other investors?
@Mary Jay, middle of nowhere will destroy you. Older place = lots of capex, difficult to rent, small/bad rental pool, possibly high taxes, expensive pm. Look at Cleveland. ;-) everything I just described.
Can you please describe what do you mean by Cleveland example ? Are Cleveland suburbs that bad in terms of the factors mentioned above ?
@Mary Jay, no, I have not personally invested in these areas. However, I have ‘run numbers’ on a number of these properties for sale by various companies. If you are paying $50k for a place, and rents are $800 a month, you have a problem, not a cash cow. It’s worse than owning a condo (high hoa fee + vacancy = BAD Year). Most are over 30 years old. Do you really think the flipper is going to fix everything that needs to be fixed?
A prime example is Clayton Morris & Morris Invest. Supposedly high returns, but no one seems to get them.
The reason is that many midwestern states have high property taxes relative to the property price. Illinois, Ohio lead the ‘charge’, besides Texas, but Texas is a completely different game.
I don’t need to touch the stove if I know it’s hot. ;-)
I must not have been very clear. I am not saying that. There is nothing wrong with taking even extreme risk - as long as you understand the risks you are taking.
My issue was you essentially said "what if the market crashes and you lose you tenants and you lose your job all at the same time." The odds of all of that happening at one time are pretty extreme.
Real estate is very risky. It is one of the few investments that you can lose more than you invest. If you worry about three unlikely events happening at the same time, then real estate probably represents more risk than you would want to take.
I am not necessarily taking about you personally, and meant no slight against you, but many people read along in these threads. Sadly many, especially newer investors, don't understand the risk of real estate.
It wasn't at all a stupid question. It is a hard to answer question without know more about the specifics of each deal and your personal financial situation, goals and risk tolerance.
i don't know why others said that, but I would consider it a happy medium of risk vs return. The problem with inexpensive houses with high return, is the return is simply an expected return. That expectation may not be realistic.
@Jon Holdman said it best. "High risk does not mean high reward. High risk means high potential reward. "
I must not have been very clear. I am not saying that. There is nothing wrong with taking even extreme risk - as long as you understand the risks you are taking.
My issue was you essentially said "what if the market crashes and you lose you tenants and you lose your job all at the same time." The odds of all of that happening at one time are pretty extreme.
Real estate is very risky. It is one of the few investments that you can lose more than you invest. If you worry about three unlikely events happening at the same time, then real estate probably represents more risk than you would want to take.
I am not necessarily taking about you personally, and meant no slight against you, but many people read along in these threads. Sadly many, especially newer investors, don't understand the risk of real estate.
It wasn't at all a stupid question. It is a hard to answer question without know more about the specifics of each deal and your personal financial situation, goals and risk tolerance.
i don't know why others said that, but I would consider it a happy medium of risk vs return. The problem with inexpensive houses with high return, is the return is simply an expected return. That expectation may not be realistic.
@Jon Holdman said it best. "High risk does not mean high reward. High risk means high potential reward. "
Interesting point! Thank u for bringing them up... makes me think ...
So u guys think that if crash happens then Midwest landlords from small towns can suffer more vs landlords from big cities? Prices for real estate may drop more in costal cities, but in bigger cities it’s easier to find jobs...
May be a happy medium is a big city in Midwest? Like Indianapolis , Kansas City...
@Mary Jay, no, I have not personally invested in these areas. However, I have ‘run numbers’ on a number of these properties for sale by various companies. If you are paying $50k for a place, and rents are $800 a month, you have a problem, not a cash cow. It’s worse than owning a condo (high hoa fee + vacancy = BAD Year). Most are over 30 years old. Do you really think the flipper is going to fix everything that needs to be fixed?
A prime example is Clayton Morris & Morris Invest. Supposedly high returns, but no one seems to get them.
The reason is that many midwestern states have high property taxes relative to the property price. Illinois, Ohio lead the ‘charge’, besides Texas, but Texas is a completely different game.
I don’t need to touch the stove if I know it’s hot. ;-)
Interpreting point...
Yes, 50k in Cincinati may not get u much cash flow , but what r our options then?
Phoenix, Vegas, ny, etc don’t cash flow...
So what do we do?
@Mary Jay, I have been considering the following scenario/example:
Buy $300k house with 20% down ($60k).
Prior to 1st payment, make a $140,000 principal only payment. $200k total.
Rent property for $1500 (net zero cash flow).
High interest rates are your FRIEND now, instead of your enemy. A 6.0% interest rate, under this scenario, the property is paid OFF in 87 months. Just over 7 years.
But you BETTER like it (the house). You are going to have it a LONG time. ;-)
Obviously you probably need partners for this type of deal (to repeat) AND they would need to have a long term vision.
When your 'normal' strategy doesn't work, change the strategy. ;-)
@Mary Jay, I have been considering the following scenario/example:
Buy $300k house with 20% down ($60k).
Prior to 1st payment, make a $140,000 principal only payment. $200k total.
Rent property for $1500 (net zero cash flow).
High interest rates are your FRIEND now, instead of your enemy. A 6.0% interest rate, under this scenario, the property is paid OFF in 87 months. Just over 7 years.
But you BETTER like it (the house). You are going to have it a LONG time. ;-)
Obviously you probably need partners for this type of deal (to repeat) AND they would need to have a long term vision.
When your 'normal' strategy doesn't work, change the strategy. ;-)
Speaking of changing strategy... I just got a hot tip from my friend... I will share it with , but please don’t tell anybody ...
Anyway, he says in Iraq prices are really low now, and cash flow is high... economy is improving plus they have oil= he says it will be next Saudi Arabia...
He is selling few of his Phoenix properties and wants to invest a million dollars over there... he is open for partnerships ...
If u are interested, let me know I will tell him :)
Not necessarily. Traditionally it is thought that the Midwest tends not to rise and fall as much as the coasts. So in a crash prices don't drop as much, mainly because they never get overheated.
As pointed out in other threads a national meltdown of real estate prices is rare. Different markets will heat up and decline at different times. The Midwest has its own problems. Much of it is in the "Rust Belt", where formerly populous cities have lost their manufacturing base. Many smaller towns may be tied to one major employer or industry.
As mentioned earlier, low rent properties have risk in that one major repair like a roof can eat up many months or rent. Even a modest repair like a new water heater can eat up a months rent.
I see you are in Kentucky. If you want to invest locally, you can mitigate some of your risks with market knowledge. Investing in the Midwest from a distance is a different issue.
@Mary Jay, you may want to reconsider Detroit over Iraq. At least State Farm will insure the Detroit property. ;-)
Not necessarily. Traditionally it is thought that the Midwest tends not to rise and fall as much as the coasts. So in a crash prices don't drop as much, mainly because they never get overheated.
As pointed out in other threads a national meltdown of real estate prices is rare. Different markets will heat up and decline at different times. The Midwest has its own problems. Much of it is in the "Rust Belt", where formerly populous cities have lost their manufacturing base. Many smaller towns may be tied to one major employer or industry.
As mentioned earlier, low rent properties have risk in that one major repair like a roof can eat up many months or rent. Even a modest repair like a new water heater can eat up a months rent.
I see you are in Kentucky. If you want to invest locally, you can mitigate some of your risks with market knowledge. Investing in the Midwest from a distance is a different issue.
good point...But at the same time, when people refer to low rent properties, not necessarily 50K Cleveland property will bring low rent, right? It probably will rent what, for 700$per door? To get 800$ in Phoenix area (where I live) u have to spend 160K...It may not need a new roof, but probably will have a negative cashflow...So, what is better? Negative cashflow in a growing area that will eventually break even...Or a new roof that may eat cash flow for 2 years or so in a 50K house?
I have both...negative cashflow and a 25K house...Did put a roof on it 2 years ago, cost me 2K...Did fix a water heater-100$...Thats my spending during the last 10 years on it...
I feel like the house in Phoenix (350K house) needs more work than the 25K house...
But I think i got lucky with it...It did not need any major work...Plus, who knows how long it will last before it needs major repair...
Thank you for your post...You make me think...
@Mary Jay, you may want to reconsider Detroit over Iraq. At least State Farm will insure the Detroit property. ;-)
Heck, yeah! All those cute commercials with cute animals! Definitely Detroit wins over Iraq!
I guess we have a plan! :-) Here we come, Detroit! :-)
@Mary Jay, you 'can' have negative cash flow. As long as you can afford it with your 'day job' and have SOME type of plan (like paying it off, selling, refi for cash flow).
A lot of it depends on when you bought. If you bought at the peak, say 10+ years ago, and were able to hang on, you might be half way to paid for.
I think to buy into TODAYS market with negative cash flow is a form of financial suicide. You better have a GREAT plan. ;-)