Real Estate Investor · San Antonio, TX · Member since 2017 · 40 posts · 12 votes
Hello everybody! I have a question. I own a rental house with 135k left on mortgage with 3.75% and monthly payment of 1100$ My house is located in a very solid B+ neighborbood in the NE San Antonio area close to IKEA. The house rents for 1545 to 1595 depending on season. I have a pretty high earning capacity currently but would like to retire in 5 years. I also have a spare ~100k I could invest or pay down this rental loan to get it cash flowing better.
Do you guys think I am crazy to buy another house in the 175k range put ~60-70 k down payment then 15 to 20k renovating it then renting it for 1595? I calculate my mo mortgage payment plus tax/ins would be 1050$ with a loan around 100k @4.5 to 4.75%
Or should I just pay down the rental I currently own? How bad of a deal do you guys consider my current rental? PS, I own my primary residence outright with no mortgage. Thanks for advice!
@Jerry Lundergard your first example is right on the money. Your second one is a bit too 'thin'-not enough return. Real cash flow should not depend on the size of your downpayment. If you must put more down you are 'buying cashflow' which is fooling yourself. I suggest you become familiar with the 1% rule and please attend Brandon Turner's podcasts. Like the one coming up on Feb 19th-right hand column on this page. Jerry you are doing great you just need to fine tune some basics. All the best!
Either way, it's not a bad idea. If you want to retire in 5 years, having little to no debt is a great place to be. Also, having one rental property is not as good as two. If two are cash flowing, that is better than one. Use the additional cash flow to pay them down or off in the next 5 years.
Thanks for the replys guys! @bjorn - The 1% rule is super tough to come by on the ne side of san antonio. I dont have many wholesaler contacts but i do need more. No way your getting that off mls. I think to get the 1% rule on ne side the house would need hard money d/t beeing a super hot mess. I have a great plumber and a couple good contractors who do decent to good work and have good pricing. Im still scared of big projects requiring 50k+ renos.
@a dooley, i agree 2 cash flowers is better than 1 paid off but 1 paid off rental would make for stress free. However, i have no doubt my overall net worth will be higher with 2 vs investing in s n p or paying off first rental.
Since you are high income right now, you can live on less money now and pay those houses down along with the tenant's rent payment. I always look at worst case scenarios, because I am that kind of guy:
Lets say Rent goes down 30% from 1595 to about 1100, which is your mortgage payment. No big deal. You are still covered. Lets say that happens on all 3 houses that you are going to own this year. Still no big deal because they are all paying for themselves.
Where is the stress. You make plenty of money to be able to pay all 3 mortgages out of your pay if they were all empty, right?? So why worry?? Even if you had to sell YOUR house for half of what you paid for it and move into one of the 3 houses, you still have 2 houses that you can rent AND have the cash from your home.
You could always downsize your home and get something a little smaller or cheaper and have some extra cash in case something happens with your rentals. You have lots of options, all good ones.
@Rickpozos thanks for the vote of confidence! I was hangin out on mmm forums and they were starting to put doubt in my real estate plans. I have run the numbers on different scenarios and i calculate picking up another rental beats investing in S&P mirror or paying off my current rental. Ill just have to stay on the lookout for something I like that makes sense. Short term it creates more anxiety but long term I am confident its the wiser choice.