When to buy next rental property ?

Question

What point do you start looking for the 'next rental property'?

I have 1 rental now:

Value = $135k

Balance = $100k

Equity = $35k

I put down $25k down, so really only $10k equity.

Mortgage, Insurance, Taxes = $900.. rented at $1150.

So that's around 12% coc.

Mitch Messer · Answer

Hi @Alan Hicks and congratulations on doing Deal #1!

However...

Your cash-on-cash return is absolutely not 12%!

For one thing, your total cash invested wasn't just the $25K down payment, but also the closing costs, appraisal fees, inspection fees, loan origination fees, and anything else you paid at closing. Not to mention any upfront repairs you might have needed to make.

Second, your annual cash received doesn't yet include maintenance, management, or vacancy. These are all real-world, non-optional expenses that you will incur!

No judgment here: If it's any consolation, I made the exact same mistake (repeatedly!) when I got started investing. In any case, your bank balance would have revealed the whole truth to you in about a year or so.

Once you've re-run your numbers, I'd love to know what your actual CoCR works out to be!

Alan Hicks · Answer

I am thinking once the mortgage balance is $30k less than 80% LTV - which would be $83,000 balance.. I can pull that equity with a HELOC and buy another one.

$250 per month is nice. The other option is to pay it off in 12 months.

Jon Reed · Answer

Buy the next one as soon as you are financially and mentally ready. There is no set 'rule' on when to buy another. Some people can buy a new property every few weeks while other only buy one every year or two. It all depends on you.