My current status: 3 rental properties... Am I doing it right?

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My current status: 3 rental properties... Am I doing it right?

Chris B.
Investor · Newfoundland, NJ · Member since 2017 · 37 posts · 50 votes

This question is for experienced investors...  Am I investing correctly? Or should I change strategies? I am buying the worst houses in good areas and fixing them up and renting them out.  The below numbers I am not including maintenance and inoccupancy. The rehab costs include any maint over past two years for two of them. The third, everything is new.,  Everything is in tip top shape and easy to manage. (2 Bed 1 bath single floor under 1000 sq ft.   All profits go back into the business for those rainy days.. I haven't taken a dime out.

First property purchased off of Auction.com. 

Purchase price: $42,000

complete rehab cost: $45,000

rental:   $1250  month

expenses monthly: $400 taxes and $70 insurance

I am refinancing this one. Appraisal came back @ $140K. Taking $84,000 @ 5.5%

Second property purchased off mls.

Purchase price $60,000

complete rehab cost: $60,000

rental monthly: $1500

expenses: $500 taxes and $70 insurance

This one I purchased through a S corp and would need a commercial loan to refinance.  Holding off for now because of the higher rates.

Third property purchased off of the mls. Which is my best deal yet, but didn't realize it when I bought it.

Purchase price $60,000

complete rehab cost: $43,000

rental income: $1550

This just appraised @ $190K.  I am going to take out $114K @ 5.5%.  I could take out up to 80% @5.875, but don't want to push it...

So the money I am taking out is going to help pay off my HELOC that I used to purchase these. I should be closing in next week or two. Are these good investments? Should I look to continue adding more now that I have more money to spend? Are there better opportunities elsewhere? Currently these are within 10 minutes of my house which I am managing on my own. Goal is to get 10 doors in next few years and quit my job working in NYC...

Would like to get into multi family, but not finding any opportunities near where I live in North New Jersey.  Any thoughts, or things I should look to change for future investments, or constructive criticism would be greatly appreciated.  

Thanks so much.

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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
7y

@Chris B. Sounds like you are nailing it!

Keep up the good work.

I beleive that the key is to finding a deal, that is were you make your money.

If you can keep using the BRRR methode you can keep buying houses.

You are meeting your goals so much faster by reinvesting in yourself instead of spending some of the profits along the way. Great Job!

15Reply
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  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    7y

    @Chris B. Sounds like you are nailing it!

    Keep up the good work.

    I beleive that the key is to finding a deal, that is were you make your money.

    If you can keep using the BRRR methode you can keep buying houses.

    You are meeting your goals so much faster by reinvesting in yourself instead of spending some of the profits along the way. Great Job!

    15Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    7y

    @Chris B. Sounds like you are nailing it!

    Keep up the good work.

    I beleive that the key is to finding a deal, that is were you make your money.

    If you can keep using the BRRR methode you can keep buying houses.

    You are meeting your goals so much faster by reinvesting in yourself instead of spending some of the profits along the way. Great Job!

    0Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    7y

    Sorry for typos. I saw them after I had already hit send.

    0Reply
  • Kurt K.
    Rental Property Investor · Phoenix AZ / Kendallville, IN · Member since 2016 · 293 posts · 149 votes
    7y

    @Chris B.Looks like some good deals. Remember to keep some cash in reserve for CAPEX. Are you self managing?

    1Reply
  • Chris B.
    OP
    Investor · Newfoundland, NJ · Member since 2017 · 37 posts · 50 votes
    7y

    Thanks John. I appreciate that... Yeah, I like to buy the ones that have been sitting for a while on the MLS. I see them pop up @ 119K. I add them to my watched list. when I see them go down $10 K every month I start getting excited. This is what the last one did. When it was $79K, I offered 55K cash with no contingencies. Closed @ 60K. Put 60 into it and it got appraised @ $190K. Trying to find the next one now. Just wondering if there were better opportunities around and thought I would ask. Bored to death with no homes to restore at the moment...

    8Reply
  • Chris B.
    OP
    Investor · Newfoundland, NJ · Member since 2017 · 37 posts · 50 votes
    7y

    @Kurt K. yes I am self managing. I am the initial contact with all issues. I have a good team built up though. plumbers, electricians and handymen. My main goal is getting everything fixed ASAP and with brand new stuff. No tenant has left me yet as I am going into year 3 of REI... Hoping to be able to do this full time in coming years.

    4Reply
  • Timothy M.
    Arlington, VA · Member since 2015 · 60 posts · 100 votes
    7y

    @Chris B.

    Sounds like you are doing great.  Why not just bide your time, stack up a little dough, and wait for the next great deal to pop up - no sense rushing it. You've clearly got a model that works, so just... keep doing that :)

    7Reply
  • Michael Ablan
    Real Estate Broker · Watertown, NY · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    @Chris B. - These look like great deals to me! You're buying them cheap, putting modest $ into the rehab and getting awesome rent/ARV. How's your deal flow? I'd say if you can keep pumping these out back to back then I'd keep doing it, while keeping my eyes and ears open for other opportunities that may sound interesting.

    Nice work!

    2Reply
  • Michael Ablan
    Real Estate Broker · Watertown, NY · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    @Chris B. - These look like great deals to me! You're buying them cheap, putting modest $ into the rehab and getting awesome rent/ARV. How's your deal flow? I'd say if you can keep pumping these out back to back then I'd keep doing it, while keeping my eyes and ears open for other opportunities that may sound interesting.

    Nice work!

    1Reply
  • Matt Rusk
    Member since 2018 · 16 posts · 15 votes
    7y

    @Chris B. I am guessing you are buying in the West Milford area? How hard is it to find decent tenants?

    I am also in North Jersey and am doing the same thing buying small houses in the Hopatcong area. Just finishing up my 2nd one now.

    Matt

    0Reply
  • Meredith Fox
    Rental Property Investor · Akron, OH · Member since 2018 · 30 posts · 32 votes
    7y

    Numbers look good. If you need to refinance your s corp property you can always transfer the title to your name, do the refi, then transfer it back. 

    2Reply
  • Chris B.
    OP
    Investor · Newfoundland, NJ · Member since 2017 · 37 posts · 50 votes
    7y

    @Matt Rusk Hey Matt. Yup. All of mine are there. I just looked at one on Hillside in Hopatcong, but it’s over 30 minute drive so decided not to make an offer on it. I am not ready to let others manage my properties yet. I get multiple applications in days after my realtor lists them to rent. It’s getting harder to find them now though. Am looking in nearby towns now too.

    0Reply
  • Chris B.
    OP
    Investor · Newfoundland, NJ · Member since 2017 · 37 posts · 50 votes
    7y

    @Meredith Fox are there any tax implications of doing that? I know a bank can call the loan if they wanted to by transferring back. Hence the concern...

    0Reply
  • Meredith Fox
    Rental Property Investor · Akron, OH · Member since 2018 · 30 posts · 32 votes
    7y

    They can call the loan if it's Freddy or Fannie. If you use a local bank and wait the 4-6 months seasoning period you can usually get away with it. 

    2Reply
  • Chris B.
    OP
    Investor · Newfoundland, NJ · Member since 2017 · 37 posts · 50 votes
    7y

    @Meredith Fox the credit union said they could transfer to my name at closing. My other worry is taxes. I’ll ask my lawyer and accountant their thoughts... Unless someone knows here... I’ll never purchase under a company again unless I attempt a flip. Thanks.

    0Reply
  • Meredith Fox
    Rental Property Investor · Akron, OH · Member since 2018 · 30 posts · 32 votes
    7y

    https://www.biggerpockets.com/renewsblog/2016/02/25/owning-rentals-s-corporation/

    2Reply
  • Account Closed
    Rental Property Investor · Torrance, CA · Member since 2016 · 724 posts · 1k+ votes
    7y

    @Chris B. You’re killing it!! My plan is to do the exact same, except out of state in Birmingham Alabama. Of course that adds another layer of difficulty. Trying to find my first deal is proving to be a challenge. Keep it up! Your success inspires all of us that are trying to find deals.

    4Reply
  • Shane Bracewell
    Rental Property Investor · Barrow, AK · Member since 2018 · 31 posts · 8 votes
    7y
    @Chris B. This is really inspiring. Two questions: 1. What specific sources were the best resources for you to learn how to BRRRR? 2. How did you network to find your team?
    1Reply
  • Jnon Griffin
    Carbon Hill, AL · Member since 2017 · 1 post · 1 vote
    7y

    @Account Closed-I am a real estate agent in Alabama if you need assistance. I am also a new investor....wondering if I am doing this correctly. I dont know if my strategy is correct, but seems to work. The original intent was to build up a business for my son....I have another business that I get a decent distribution quarterly. Instead of borrowing from bank, I use that distribution to buy rent and hold. My first purchase was a triplex (all tenants already in place) (60K)-total monthly rent $1900, then we purchased 2 mobile homes (25k)that were on an acre of land (tenants already in place-monthly rent $1000), and our last purchase was a single family home. This is the only one we have had to do rehab on. We purchased for 35K, then have put about 5K of work in it. Our tenant just moved in and will bring $625/mo. I also have purchased a commercial property, and it will have to have some rehab before we can start renting it out. I bought this one off auction.com and waiting on deed to come through. All these have been cash purchases, and wondering what everyone's opinion is on financing some? I am thinking especially for the commercial property.

    1Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    I'll give you a different perspective on your investments just to see another side.

    First SFH are a extremely high risk in themselves but facing a adjustment in the economy there is a possibility the equity you have is at risk. Not a major deal as most SFH investors don't believe it will happen.

    If you want to free yourself from work you should be concentrating on purpose built multi units. More cash flow and at less risk to real estate fluctuations. You need to look farther a field and get out of SFH investing asap.

    Your properties:

    1) $140K property value, equity of 56K and rent at $1250. You rent is too low based on the value of the property and your 56K equity having a opportunity value of 10% is worth $466/month of your rental income. $1250 - ($466 + $400 + $70) = $314/month positive cash flow. I do not believe you have anticipated all expences making $400 too low long term. Realistically I believe long term your expenses will put you into negative cash flow if expenses are on par with average SFH properties.

    2) You do not state the value of the property but if we assume it is similar to #3 your equity is killing your properties cash flow.  Your cash is creating cash flow the property itself is left with nothing. There are far safer vehicles today to invest in that could provide similar returns without the hassles of owning real estate or having your money at risk to the market.

    3) $190 K value, equity projected at $76K, with rent at $1550. Same scenario as #1, rent to low for value, equity eating your cash flow and long term likely negative as SFH expenses grow..

    All of this is obviously worse case and from the perspective of someone that places supreme value on cash. The numbers are typical, although expenses far too low, form the perspective of most SFH investors. The value of your cash must be ignored to make the numbers work.

    My advice would be to hold no more than 5 years and assuming markets are not down sell and reinvest in multi units if you hope to escape a job and live off of cash flow.

    7Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    Your rents aren’t that great for the amounts bought . They’re not bad but certainly marginal . Your definitely getting good brrr material with the new arv which is your saving grace . The concern is you gotta have reserves and you add risk by buying sfh instead of multis . I’d not be overleveraged these days by brrring everything . You don’t want to get hurt in a downturn because of these things 

    2Reply
  • Chris B.
    OP
    Investor · Newfoundland, NJ · Member since 2017 · 37 posts · 50 votes
    7y

    Thanks for your input.... I didn't get an appraisal done on the second property after they said I needed a commercial loan. The Zillow estimate is 233,000. I am into it $120k. The Zillow estimate on the 3rd property is 166k and the appraisal came back with 190k. I am into that one 103k and getting a refi of $114k tax free. They are in the same lake community. With these two refi's, I am getting all of my HELOC cash out of the deals and getting a small return.

    I’m less concerned with the equity created by appreciation and elbow grease. May lose that if market flips.  I don’t plan to ever sell them.  Once I get my 10 doors,  focus changes to paying them off.  If I can find a 6 plex where there’s better cash flow,  I would in a heartbeat.   They don’t seem to exist here..  also my wife thinks multi families have a lot more turnover and lower qualified tenants.  Would definitely like to try one though.  I am a bigger podcast listener and know that’s how you grow quicker.I am open to all possibilities...

    I can see your point of negative cash flow for maintenance after I refi. If I can get these all paid off, there’s a ton of positive cash flow.   I left the rat race... It is good having a good paying job as a backup.  Have had to invest some of my own income to make this happen.  In reality though, most of this was done with bank money from my primary home equity. Not my own cash.  

    Appreciate the comments...

    0Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    @Chris B.

    If your goal is to scale out then it's much easier with multifamily and while yes,the tenants are more transient the ROI on a multifamily makes up for it atleast in my humble opinion

    0Reply
  • Chris B.
    OP
    Investor · Newfoundland, NJ · Member since 2017 · 37 posts · 50 votes
    7y

    @Dennis M. thanks. Can you give me an example of the numbers on a multi you did? Don't have to get to detailed. Sooo curious the ROI on multi vs. SFH...

    0Reply
  • Robert Biggerstaff
    Contractor · Pensacola, FL · Member since 2018 · 303 posts · 240 votes
    7y

     In my area I buy houses for 35,000 and rent them out for 800 a month

    1Reply
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