What is your buy and hold strategy?

Question

I'm toying with two different strategies.   I'm an anti-debt kind of person so 1/2 of me wants to acquire about 25-50 rentals and then work hard at paying them off.  The other 1/2 of me wants to aquire 75-100 rentals and use the 20 year payment amortization schedule.
To the more seasoned investors...what do you do???

Account Closed · Answer

Ditto on that. I want a base portfolio of free and clear properties- 10 to 15 in the next 5 to 10 years owned free and clear. I can see using leverage to get there, in fact I can only see getting there with leverage in my markets. My plan is to cash out and pay off the loans on my best performing long term keepers sooner rather than later.

Timothy W. · Answer

"They have been harder to find; but there are some out there."

That's fine.  Be picky.  The failure to be picky is what caused many investors to fail in the last 2 years.  Your numbers look conservative and repeatable.

Don't sweat it too much on the financing.  The Messiah has taken office.  This will all be fixed by March.  If not, then remember buy and hold is long game.  Everyone will get a "credit reset" in 5-7 years and the games will recommence.  Whatever you do, stick to fixed rate financing for a while as I learned from my grandfather who lost an apartment complex to variable commercial financing on double digit inflation during Carter.  We're not out of the mess yet.

Adair Smith · Answer

I don't believe I am bogged down in the numbers and EVERY property cashflows a min. 2% most do more.  I'm putting together some projections and was curious if any used excess personal cashflow to pay them off faster.
            
  The northeast florida area has been devestated by over building.  With the banks in trouble, 20 year amms are the only loans about there.  (5 local banks have MOUs or C&Ds within the past month) I have been to EVERY bank in town.  They all have offered 20 years amm none have offered more than that.  With that said I have adjusted my purchasing requirement to 40% LTV (after repairs) and 2.25% rents.  They have been harder to find; but there are some out there.

Will Barnard · Answer

IMO, using a 20 year amm loan does not make sense as an investor. If you use a 30 year, nothing says that the excess cash flow you will have can't go to the principle, thus paying the loan off in 20 years or less. Then in times when you need the cash flow for other expenses, you have it.

Timothy W. · Answer

I buy all cash because I kind of have to right now.  I came back into this game post-divorce with lousy credit and no assets so I had to start from where I was.  The blessing in that is that I learned to seek out and hold out for screaming good deals.  
            
            Right now my strategy is to get 25 properties into my portfolio free and clear as the "foundation" to my portfolio, then I can approach the bank from a very solid equity position.  Leverage is the key - however I would NOT secure against any property I wasn't willing to lose with an adjustable rate loan for the next 4 years at least.  I am very serious about this.  My grandfather was an investor through Carter and experienced the double digit rate increases.  Now is financial "ark" time.

In the end though, a portfolio with 5 well performing properties beats a portfolio with 500 marginally to poor performing properties.  Buy smart, manage well and don't get caught up in the "I have X number of units!" nonsense.

Will Barnard · Answer

I would not be a RE investor without the usage and power of leverage. I know I will get others to argue that paying all cash and owning property free and clear is the "safe" way to invest, and improves cash flow, but it also eliminates the power of leverage which is one of the greatest tools in RE investing.

The key is to not over-leverage and to buy correctly. Add those in with properly calculating the financials on an investment, including OE, cash flow, COC, ROI, and ROE are imperative.

SO to answer your question, I use leverage any chance I can. Managing 50 different homes in differnt locations can be a large headache. Owning that many rentals, I prefer to have a group of them in one location, i.e. apartment complex.