Am I moving too fast?

Question

Hello everyone, I’ve had a VERY busy year for a 22 Y/o I bought my first rental property in lacrosse Wisconsin almost a year ago, June 2019. I bought my second in January 2020. last night (May 5) I put an offer in on my first duplex and it got accepted. In total on my first 2 properties I’ve invested about $50k cash between the down payments and repairs. This deal came along in a duplex that I couldn’t pass up. The downside is that I offered 139k, and as far as cash I only have about 15k for a downpayment, so I’ll have to buy the duplex on an OO loan. Should I have toned it back and waited until I had more cash to be in the market for another rental? I kind-of feel like I’m moving too fast. I don’t want to waste my OO loan on this duplex.  Any thoughts?

JD Martin · Answer

I don't see that you're "wasting" your FHA on the duplex. If it needs any kind of work, you'll be surprised how fast a year goes by. If I was back at your age just starting out I would be all over FHA duplex/triplex deals, especially with today's interest rate environment. Especially true if you can meet all your obligations with your "day job".

Landrin Lewien · Answer

@Calvin Thomas

Upkeep is no issue to me, I can build/fix anything in a house. If tenants were unable to pay I would be able to cover my payments on my houses with my regular job, I take home about 1k a week. My payments combined are about $1100 a month. And like I said I don’t have any other expenses no car payment or rent or anything not even a Netflix account, my biggest expense is probably my bar tab lol. And savings I have about 17k right now.

Adam Hoffer · Answer

@Landrin Lewien, first, congratulations on the accepted offer and your purchases. It sounds like you are crushing it! La Crosse is a great rental market and I can’t think of much of a better way to get yourself further along the path to F.I.

Is there a particular reason you don’t want to owner occupy? You can move out and get another owner occupied loan in a year (if not sooner). The OO option looks great I think. It is a textbook house hack.

Knowing only a little about your situation, I’d say you probably want to build up your cash reserves before buying another property.

I’d be happy to talk more about Investing or our market. Shoot me a PM if you want to talk more. Congrats again!

JD Martin · Answer

Buy all your rentals first. Or a house that makes sense to turn into a rental. Homes for yourself tend to be asset drains. I should have done it that way when I was starting out. Instead I did what most people did - got my own home first, then rentals later. Totally backwards. This is important because you're not immortal, and there's no substitution for time or the power of compounding.

Landrin Lewien · Answer

@Calvin Thomas it’s worked for me so far, my first house I’m cash flowing 900/month and my second I’m cash flowing 400/month. Yes very good job, absolutely no debt other than my rentals, I still live at home rent free and no car payments ect.

Landrin Lewien · Answer

@JD Martin

Sounds good, yes I’ve been conservative before this, yes I’m sure a year will fly by. Then I want to actually consider buying a home for myself.

Michael Belmore · Answer

@Landrin Lewien

Congrats on gaining momentum at such a young age!

In regarding to wasting your OO loan on a duplex, in some cases (with a bit of convincing) you can increase the family size with FHA. So I wouldnt dwell on that one to much.

Keep rocking and rolling.

- Mike

Kai Van Leuven · Answer

@Landrin Lewien

I love it! When you are young, no kids, and 22 throw caution to the wind. I used to be a real “gun slinger” at that age but I wish I would have “poured gas on it”.

To be that young... I remember going to work at 330am, working until 9 M-F and working from 3:30 am- midnight on Saturday. You do that for 10 years and you will be ready to die but have a few war stories to share! Keep it up, just make sure they are all good deals.

Landrin Lewien · Answer

@Adam Hoffer

Thanks for the input, I’ve been trying to get to your REI meetings but I’m never around. I’ll try to make a point of it once all this is over.

I fell like I’ve been able to save money very fast this way, so if I deplete my savings i can just wait 2 months and have a good chunk of change again.

Yes I think the OO is a good idea but like you said I gotta wait a year to buy another one. Before I found that duplex I was actually browsing around for a house for myself, I suppose I can live in a duplex for a year thought.

Nathan Gesner · Answer

It would appear you haven't really cut your teeth yet. You bought in a "perfect" market where prices are good, funding is pretty easy, and rentals are strong. You've only owned for one year so it's unlikely you've dealt with many applications, noise complaints, un-mowed lawns, pet violations, non-paying tenants, evictions, unauthorized tenants, hoarding, evictions, and other problems faced by Landlords. On top of that, it sounds like you have no reserve saved up to handle vacancies, roof replacement, a trashed unit, etc.

Yes, I would recommend you slow down. You could have one bad tenant and the cost could kill your ability to keep things afloat. Save up a solid reserve so you can handle a bad tenant that skips two months of rent payments and causes $10,000 in damages. Ensure you have a solid financial foundation before you get any deeper. I also recommend you start preparing for problems now rather than wait for them to happen. How will you handle noise complaints? Pet violations? Unpaid rent? Eviction?

We've been in a strong rental market for 10+ years and a lot of the "experts" you seek advice from have just a few rentals and have never dealt with a problem. I see many self-managing Landlords that are losing money every month by renting way below market, and the only reason they survive is they get lucky with a good tenant that stays for 10-15 years. When that tenants leaves, the Landlord finds a new tenant and feces hits the rotating oscillator because they are over-confident and ill-prepared. I manage for an investor right now that lost an estimated $100,000 with five rentals in a three-year period. That's about $7,000 a year in LOSSES because she didn't know what she was doing and some bad tenants ate her lunch.

Save for the bad times. Prepare for the bad times. Then get back to investing and you'll be a very wealthy man by the time you reach 30.

Am I moving too fast?

Most Popular Reply