Just bought my 2nd rental property. Am I doing this right?

3 Replies

Quick background on how I got here.

In 2009 my wife and I moved into our first home together . It was a brand new home for 109k here in Texas. In 2015 we were blessed by some very grateful friends and we were able to pay our home off in full. 

Fast forward to May 2016 we decide to move into our bigger home for 180k. At this time we decided rather than sell our first home and move it all into this one we just bought, we would try renting it first. 

Fast forward to today. We are charging$1200 a month. We owe around $4100 a year in taxes & insurance. We have been using the $1200 to basically pay for our current mortgage which is closer to $1400. 

My thinking now is, why take advantage of just one home paid for when we could leverage that paid for home and buy more rental property? So a rent property pops up for sale from someone that I know and we buy it for 111k. It's been bringing in $1200 a month. After talking to a few people I decide on going with a 20 year bank note amortized over 20. I use 20% down from my paid for rental. My payment is around $787 not including insurance ($1100 a year) and from what I can tell not including taxes either (around $1700 a year). So, after PITI I'm pretty much breaking even.

Did I make the right move here ? Should I leverage this paid for home and use 20% down to buy even more? This is very much a long term investment and I have no means of making any type of short gain out of these.

Right move, however refinancing the fully paid may help, especially in the multi-family realm

@Charlie Garner , (as an aside, when you swap between $x per month, and $x per year, it makes it harder to keep up with where you're up to with cash flow). Congrats so far, anyway.

As a rule of thumb, so long as its gross rent per month is at least 1% what you paid for the property, you should be able to leverage it up to about 70-75% LTV before it starts to regularly cash flow negatively. (But of course, do your sums well in every instance).

However, looking for bargain-value requires a different skill set. One you should try to attain!

My main concern with your whole post was when you wrote: "I have no means of making any type of short gain out of these", which means to me: you're buying random properties, at market value. Is that right? You'll always be going the slow* way to wealth by doing that. 

* ("Not that there's anything wrong with that").

A quicker way to wealth is when you do "have means of making a short gain out of these" (if you needed to). Ask yourself: How are Flippers able to make money in the short term, when they're buying at the same time as you are? My point isn't that you should sell quickly after value adding, it's that you should pay the "right" price, for the "right" (bargain) properties to begin with! [Hence the expression: You make your money when you buy , not when you sell!] My 2c...

Originally posted by @Brent Coombs :

@Charlie Garner, (as an aside, when you swap between $x per month, and $x per year, it makes it harder to keep up with where you're up to with cash flow). Congrats so far, anyway.

As a rule of thumb, so long as its gross rent per month is at least 1% what you paid for the property, you should be able to leverage it up to about 70-75% LTV before it starts to regularly cash flow negatively. (But of course, do your sums well in every instance).

However, looking for bargain-value requires a different skill set. One you should try to attain!

My main concern with your whole post was when you wrote: "I have no means of making any type of short gain out of these", which means to me: you're buying random properties, at market value. Is that right? You'll always be going the slow* way to wealth by doing that. 

* ("Not that there's anything wrong with that").

A quicker way to wealth is when you do "have means of making a short gain out of these" (if you needed to). Ask yourself: How are Flippers able to make money in the short term, when they're buying at the same time as you are? My point isn't that you should sell quickly after value adding, it's that you should pay the "right" price, for the "right" (bargain) properties to begin with! [Hence the expression: You make your money when you buy , not when you sell!] My 2c...

 Totally understand and yes you are right. When I mean no short term gain I just mean that I have no intention of turning around and selling any of these soon. If my thinking is wrong there then please correct me! I'm definitely looking for bargains. This last rental I bought probably was not the best bargain but it was one I KNEW could rent for that price and do nothing but go up in the future. 

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