Was curious about everyone’s perspective. Moving to Indiana after previously buying a townhome in Il. It will likely cash flow 100-200 after property management fees, not as much as I would like, especially if fixes come up. We bought it last year in July with 0 down at 4.05 percent no pMI.
Would y’all keep this and just try to pay it down quickly and still have a good monthly return once the principal and interest is off the expenses? I would probably come out on top if I sold cause I converted a loft to a third bedroom. I could also drop a large sum on it, once I get my first year under my belt at the new job and refinance to lower payments too.
I have a second property that’s cash flowing well. About 440 positive after all bills and savings for cap ex. So this could shield some of this one.
I come from a unique situation where my wife is a medical student and I am a physician. I start July as an attending and for the first 6 months won’t work extra at all, but after I get my feet wet I think I’ll go from 260 a year to 350-400k. Once she is a resident next year she’ll add 60 k and in 4 years another 200-300 a year.
Paying out of pocket costs won’t be devastating as I could float those two mortgages and my next one (perm residence) on about 45 percent of my take home pay .
Any opinion is appreciated.
Is that 100-200 after PM fees all that will be left with no other budgeting for Cap X etc? If that's the case unless its a heavily appreciating market or you're upside down (which I assume you're not judging from your post). I would personally unload it and try to put my money into something else where the numbers work better. There are many variable to consider, I wouldn't recommend dumping money into it so it cash flows or carrying two mortgages just because you're able to. However, everyone's situation is different. Good luck!
That's absolutely fantastic that you make so much money i would love to have that kind of tools to use.
my first thought when reading your post was that you kinda see the homes as a personal possession, not as a tool to make you money.
If it was me i would try to not use your personal money to MAKE a house profit. While having your income as a fallback is nice I don't think it puts you in the right mindset to get back more then you put in.
I would take all that income find a full-time investor and buy properties off them with the intention to rent them and maybe have that same investor manage them. If you only make $100 or $50 per month after tax, cap-x, management fee, insurance and a dedicated amount set aside for every expense attached to it life span, so you have a budget for everything so basically you don't ever need to put your money into a deal after you buy it… EVER
And you just keep doing that until you die and then your family is left with the problem of spending the CRAZY amount of MONEY you left them.
@Edward Kanive like everything it depends. What would be your profit if you sold it? Only you can know what the current condition of items that typically will need repairs are. That would play a factor.
As far as future goals for you, income wise you’ll hit accredited investors status soon enough. You could move away from buying rentals and more into syndications and other more hands off investments.
Given that your income level you can’t write off a paper lose on your taxes to offset your Physicians income. I’m in the same boat though my goal is still multi family rentals and mobile home parks. But I’m also not a doctor so my time requirements for my work a probably a lot different than yours.
Sell it. There's no good reason to keep it.
It is hard to tell with $100-200/month not knowing how much the expenses and rent are. If your are cash flowing $100-200 on a place that rents for $500, that is pretty good. On a place that rents for $2000/month, not as good.
It’s hard to understand how you can buy wrong in Indiana lol but if you are not cash flowing then you indeed bought wrong . The Midwest is full of cash flowing properties there’s no good reason to own one that doesn’t
Edit : is the rental house in Indiana or Illinois?
Consider something you and your wife will understand, i.e., commercial medical buildings, including support rental spaces. You will both have a unique and rare ability to do evaluations. Almost all of us don't know a good from bad value in that arena.
Cash flow is not the only consideration. How much capital is tied up in the property? Could that be better put to use elsewhere? That's how I would make the decision whether to sell or keep.
I'm a financial independent Real Estate Investor in Brooklyn, NYC with a portfolio of 10 small multi-families (with partners). I have been doing this for 21 years.
I also have several Doctor friends, one that invested with me early on and one that missed the boat, and now my 2nd Doctor friend, as much as he makes, cannot afford to buy a Property here in Brooklyn anymore. He has become priced out of this market.
Both Doctor friends started to look at the way I was buying my properties with very little Cash Flow.
The 1st Doctor who became a Partner earlier on, became a millionaire.
The 2nd Doctor, completely missed the boat. He couldn't get past the lack of cash flow. He's in his 50s and wants to retire from Medicine because he is burnt out. Unfortunately, he can't but my 1st Doctor friend can.
The one thing about Cash Flowing properties I like to point out is that to me, in my humble opinion, THERE IS NO SUCH THING AS A CASH FLOWING PROPERTY..... it's the INVESTOR that cash flows the property.
Your example is actually GREAT!
You put ZERO down, and you just barely get a cash flow.
BUT... of you bought the property ALL CASH without a Mortgage... you would be CASH FLOWing that property nicely, I bet.
If you decide to self-manage it, then the cash flow would probably be awesome!
There are 2 hypothetical scenarios of your property which explains why I believe you chose NOT to Cash Flow it:
1) You put zero down and barely cash flow
2) If you paid all cash for it, it would certainly cash flow well
So, what is it? A cash flowing property or NOT?
To me, the answer is NEITHER..... it was YOU who decided NOT to cash flow the property.
HOWEVER, that's only temporary.
Like you, in my first property, I really broke even. BUT, my salary for my first property 21 years ago, was high (above $100k back in the late 90s).
I bought my property with 15% down and broke even with the cash flow. It didn't make me nervous because I could pay off the Mortgage and solve my cash flow problem.
Over time, I actually paid off the Mortgage to increase my Cash Flow so I can become financially independent.
Paying off the Mortgage to increase the Cash Flow was not a characteristic of the Property, it was a choice that I made.
From the day I paid off my Mortgage and cash flowed that property, I was financially independent.
Do I think that the property I bought with ZERO cash flow was because of the Property? NO... it was because of ME, the Investor.
If it was because of the Property, then I wouldn't be able to change the Property's cash flow.
Characteristics of a property are normally beyond something you can change. Since you can change the Cash Flow on a Property by either putting a Mortgage on it or not, we (meaning those of us that look at the financial statements very hard), realize that the Cash Flow is caused by the amount of Debt Service which is NOT part of the Operating Expenses. That's the reason why it's not, because Debt Service is a characteristic of the INVESTOR, not the Operating Expense.
Another way to think about it is that the Property Tax is an Operating Expense because if Investor A buys the property, the property tax will be exactly the same as if Investor B buys it.
BUT, if Investor A completely Mortgages the property while Investor B pays all cash, the Debt Service is dramatically changed and so does the Cash Flow of both Investors. Therefore, the Debt Service is a NON-Operating Expense which then is reflected in the cash flow.
Anyway, I think I beat this horse to death.
It's not the Property that Cash Flows, it's the Investor that Makes the property cash flow.
Something to think about.
That depends. Personally I don't keep any properties that don't cash flow at least 250 per month. Would you at least break even if you were to sell it? I might be inclined to rent it out for a few years and see how it goes. If it becomes a pain with it being in another state then I would sell it.
Have you considered any of the owner finance strategies? PM me if you are interested
Option 1: Sell the place. Recoup your $0 investment. Take that $0 and invest it elsewhere.
Option 2: Keep the place. Put the $100-$200 FCF aside in case there is an expense or a vacancy. All the while you enjoy your increased net worth through someone else paying your principal reduction.
While it would be tempting to recoup your $0 investment and use that $0 to purchase something else like a rainbow, I'd be happy to keep the place I spent $0 acquiring while it continues to increase my net worth - even if that increase is at a slow pace.
I would agree with Greg..esp if you through some extra money at it ..and the rate is great!
Wow. Thank you for all your different insight and opinions. It is great to see others thoughts. Llewelyn and Greg sort of have my same thought process. Ideally, yeah I don’t have to put money into properties and cash flow really well, but the fact that I put 0 down and still will be slightly positive makes it make sense to make. The closing costs of selling don’t make sense. If I were to get this home paid off, I would probably cash flow 9-12 k. If I didn’t have the luxury of the income, it wouldn’t be sustainable, but with the physician income it’s something I think that is worth stomaching.
I saw people saying I should invest in commercial for medicine or move to other types of investment. My job is 7 on 7 off. 25 weeks a year. This is a really fun hobby to me. I plan on trying to dedicate a fair sum of money every year because I enjoy this and is a something to research and do on my off time.
I’m looking forward to moving to Indiana and learning the market. 500 thousand dollar homes have the same property tax as my sub 200 k town home.
the one bind I have is to get my forever home, I will probably have to start getting this debt paid down.
Have you considered any of the owner finance strategies? PM me if you are interested
@Armond Wright not at this point in time. May consider in future
There's always so many factors to consider but just quickly from knowing what I know with such minimal cash flow and the fact that you added a third bedroom I think I would look at a cash out refinance and invest that money back into something that cash flows a bit more comfortably than that one currently does. Again there are many factors. That was just my gut reaction. I'm sure the answer will make sense to you when it is presented. Best of luck to you!
Keep the mortgage. Money loses its value with time. Your mortgage is locked and rents will keep increasing over time... You should increase their rent $25 every year now your 200 becomes $225, if you pay it off completely now you will lose the money you could use to acquire a different property or your forever home.