BP community, help me settle a debate with a colleague, here is the scenario:
We have a friend, let's say his name is Bob, he would like to leave his w-2 job. Bob, mid 50s, currently has 20 doors averaging $450 cashflow a month, 9 grand total. Let's say around 1.5 million in equity. Portfolio comprised of SFR with a couple small multifamily. He would like to reach $15,000 CF a month in next 2 years, what is his best strategy to achieve? Thanks in advance for the input.
There's a debate and difference of strategy: increase cash flow by paying down mortgages. Take all free cash flow and put it toward the lowest balance mortgage, then the next etc. Now you have what ever doors no/low debt.
OR BRRRR, where you refi out equity to the extent each door still cash flows 250-300/door take that cash and buy more doors. If your DTI has been maxed out look for soft money/portfolio (a misnomer today) which is asset based 30 yr rental loans without FANNIE or DTI limits. Finance of America, Lima One etc. This path you have more doors which is the path I view make more wealth in the long run since now you have appreciation working on more doors then scenario #1.
One can also branch off into creative deals which require much less cash; lease option rentals from stuck sellers, buy subject to existing financing from stuck sellers...
leverage the equity he has in the SFR and purchase 1 or 2 larger multifamily properties, maybe even for all cash. The cash flow associated with MF is, dollar for dolla,r typically a better use of the money. Tapping into the equity will obviously hinder the current cash flow, but as long as you replace it with a stronger cash flow, Bob should be able to walk away nicely.
@Johnny Horner , liquidate current portfolio, 1031 into a ~$4-4.5MM large MFR with value-add opportunity. Use remaining capital to renovate and stabilize the property over 18-24 months. Refi into long-term agency debt. Goal of final valuation of $5.0-6.5MM with a minimum of 12% Return on Equity.