Have lurked on BP for quite a while now, and finally thought I would share my thoughts, strategy, and overall plan on the future. Any advice, feedback positive or negative is appreciated!
I've always considered myself an entrepreneur, someone who wanted to work for himself, do things his own way. So I started my own software development company 7 years ago, this allowed me to work from home and stock away a decent savings, but I knew I didn't want that long term, and rentals was always the end goal. Finally 2 years ago I decided to dive in, so I bought my first condo.
Let me rant about the condo and why its the best for beginners..
The condo to me is a perfect beginner rental. Minimal liability, you pay an HOA fee and most everything is taken care of for you. Roof is leaking? They'll fix it. Snow Removal, landscaping, garbage, pool without the maintenance, all taken care of. So after renovations its just basic interior maintenance from time to time. This to me is THE ideal passive income stream. Also condos are relatively inexpensive, I got mine in foreclosure for $30k, put $10k into it and they sell for $50k - $60k. On top of that they are relatively easy to sell, where something like a multi family has a smaller buyer pool.
So back to the details..
Purchasing my first condo with $30k cash, then another $10k, puts me at $40k total investment, I rent out for $800 a month, after all my costs I'm looking at $450 cash flow per month. This turns out to be around %12 cash on cash return. I'm also hitting the 2% rule with $800 rent and feel I have room to raise it as I am on the lower end in the area.
Since I bought my first condo with cash I was able to leverage that equity with a HELOC (5/3 Bank), they appraised my property at $58k and gave me $37,500 (65% LTV). With this and $10k more of my own money I just bought my 2nd condo and have it rented as of yesterday. Now I have $900 cashflow per month to pay off the HELOC plus some personal funds to get it paid off in 2 years.
My ultimate goal..
I might have listened to Dave Ramsey too much when I was young, but my goal is to pay off each property before moving onto the next one. So once this HELOC is paid off. I'll go find another condo and do it again. This way every condo I own outright will pay off the one condo I have a loan on. Once I have 4 condos paid off, they will pay for a 5th condo by themselves in 2 years (assuming purchase price of $45k).
Thats it for me, just wanted to share as this community and forums have helped me out through these last 2 years.
Wow this is a great strategy. I'm glad it is working for you. I have heard the opposite about condos. I have heard that though most things are taken care of as you stated the biggest uncontrollable factor is the HOA. They could decide that they no longer want to allow owners to rent out their property or drastically increase the fees that could eat into your cash flow. But every market is different and it sounds like you have a good lock on the ones you have invested in so far. I started out reading Robert Kiyosaki with Rich Dad Poor Dad and the Cash Flow Quadrant. Then I read Dave Ramsey and even assisted in teaching one of his group classes at my church. Talk about a conflict in philosophies of becoming financially free! In the end I decided to do what you seem to be doing and merging both mindsets in a way where you are investing and minimizing your risk. Great Job!
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