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

General Landlording & Rental Properties
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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!

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

    @Greg McGuire

    "I'm interested in the comment "buying income" vs investment income"

    This is a old topic with a great deal of controversy built in. It comes down to opposite ends of investment philosophies. Between risk takers and risk adverse. This excludes those that invest in properties valued below 50K since they must use cash to purchase.

    Income properties have two separate income generating streams. One is obviously the property and the second is the equity sitting dead in the property. Equity is a investors money, it has a value based on how each investor views it.

    Most use cash as a DP to purchase properties, some simply allow their cash to sit stagnant in a property. Equity itself can not generate a return greater than the prevailing interest rate that your cash is saving. You have used your cash, in the form of equity, to buy that portion of your return on your investment income property.  As a example if you have 100K in equity and mortgage rates are at 5% your cash/equity is generating $416/month of your rental income. You bought that income with your own money. Subtract that from your rental income and the remainder is being generated by the property. At a certain level of equity the property, after deducting expenses, will be into negative cash flow. At that point it is no longer worth owning. Additionally that equity is not as easily accessed as some may think, it may be locked down.

    From my perspective I value cash as requiring a minimum return of 10% or I do not invest. I would never invest for a 5% return although ultra conservative investors are more than happy to see 5%. If I have 100K in equity sitting dead in a property with mortgages at 5% then I am losing 5% return if I expect a 10% return on my money. That is a very high price to pay to buy income.

    Leverage is how you maximise your ROI and make your cash earn it's keep. For ultra conservative investors, or those no longer seeking to maxamise returnes, equity is the equilivant of stuffing cash in your mattress. It feeles good but isn't really doing much.

    When I stopped investment expansion I pull my equity out and invest in income funds as a long term investment plan. It earns on average more than 10% and is still accessible. It is still earning it's keep and so are my properties. All my properties produce positive cash flow, they continue to grow equity, which I pull out, and I have all the reserve funds I will ever need without having to let cash sit stagnant not earning it's keep.

    This is not a investment philosophy that ultra conservative real estate investors could ever embrace. They need to own their properties outright to be able to sleep at night and are more than willing to live with low ROI and negative cash flow properties.

    1Reply
  • Greg McGuire
    Madison, WI · Member since 2017 · 5 posts · 2 votes
    7y
    @Thomas S. Thank you for such an excellent explanation. I understand the dead equity, risk argument much better. You are obviously a disciplined, educated investor. I sometimes feel bigger pockets paints too rosy of a picture when discussing rental investments. There is no easy money, and this is a business like any other. Regards, Greg
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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    You do what you are comfortable with. As you grow you should become more comfortable without becoming complacent. Increased income should create more security. If you are the type of investor that must have security from day one all it does is slow your growth and reduce your potential income. Not a big deal but it does place your cash at greater risk in the case of market corrections. Best to avoid SFH investments in that scenario. Multi units are more secure having income driven valuation.

    Again this is only one opinion based on my perspective of investing.

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

    Hey....  This conversation has come back to life...  Just a quick update.   I just put an offer in on my 4th investment property today...   They are asking 74900.  I offered 54000.  Think this is a good starting point....   Let you know if I get it...    I know.  I know,  should invest in multi family....   Will get there soon.  Just loving the equity building strategy I am currently using...   At least my wife isn't mad at me about it...  Happy wife....  Happy life...

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