I currently own 4 single family homes all with Mortgages of varying durations. My total equity is 50% in these houses. Even with this large equity I find it difficult to overcome expenses.
My experience over 5 years leads me to believe that expenses will be 50% of income and the rest goes to paying on the mortgage. How does one buy more properties without living on the edge ?
Must I pay off all my real estate before I buy another house to overcome expenses ?
I want to buy 16 more houses and don't want to be on deaths door before I acquire them ?
Anyone else going through growing pains ?
@Steve Slomski, Without knowing enough about your specific numbers two thoughts come to mind. (I don't mean this in harsh way, so sorry if it feels that way.)
First, You probably are not getting a significant enough margin on your properties. Which means they may be rented for under market value. We look to hit a 10% Net Cap, of at least $200 per 100,000 invested.
Second, If they are rented at market value, then you probably over paid on the purchase price. If I were in your situation, I would liquidate all four properties capture the equity and look to reinvest at a better cap rate.
Happy to discuss specifics if you would like to share them, or give a private opinion if you want to MSG me.
Your right. My margins are not that great. My GM is 22%. I'm hemorrhaging cash. Total rents are 4k per month with 900.00 left after PITI. The variable expenses are killing me.
Good news is I believe I can increase my GM. One of the houses is almost paid off. That will add
an additional 500.00 per month to my GM. What I'm seeing is that I need to own one home outright for every house I have a mortgage on. The numbers would definitely work with that strategy as I'm focusing more on not going broke vs growing through leverage. However, still a long haul to get from 4 to 20 houses.
Yeah, so considering that I think (if my assumptions are right) that you then end up somewhere around 4.9% Net return before Maintenance and Management Expenses (Even if you don't actually pay this, your time is worth something). This is surly why you are feeling so constrained from a cash perspective. You probably feel pretty good when the tenants don't have issues, but as soon as they do, it will remove all of your profit in a given month.
I still think liquidating one or some of these properties, might help you reposition at a better rate of return. When I have been in this situation I have listed a property (on MLS/or not), just to see if there is any interest.
I wish you all the luck!