Buy now, pay down existing mortgages, or just wait?

Question

Wondering what the best strategy is here.  I have 9 units (Quad and 5 SFR's all on 15 yr mortgages), everything is going really well, things are cashflowing quite nicely (Bought when the market was down).

Right now, the market is dry where I am.  Not many foreclosuers.

I really would like to buy more properties but wondering what the best strategy is.  I'm looking for income during retirement - not right now.  I do not need the cash flow coming out of the properties and just leave it accumulating in my "Rentals" bank account.

Should I go ahead and buy a proprety that is not a "steal" but still a decent deal, just so I can accumulate more properties?  The cashflow from my other properties could offset a break even situation on a rental home purchased at market rate.  In the end, I still end up with more paid off properties and didn't have to come out of pocket, right?

Or is the best plan of action to pay down all of my current mortagges with extra payments?

Or just accumulate cash and then buy when the market is down?

Thoughts?  Thanks.

Brendon Woirhaye · Answer

@Glenn Primack, having too much cash buildup is certainly one of the better problems to have with your business.

Upgrades can be from a mild aesthetic upgrades (refresh paint on the trim / light posts / mailboxes), more expensive renovations (landscaping, new garage doors, new air conditioners in units that need them), or major projects.  You may have different goals for them:

- increase curb appeal, current tenant contentment and stickiness.  May help you rent quicker and retain a tenant longer, but probably won't increase rents much.

- projects to decrease costs.  Renovate to save water or electricity or other costs

- projects to update dated features.  Replace a driveway or roof which is nearing the end of its life.  Rewire old electrical or old plumbing.  Again, these may not increase your rents but will increase tenant satisfaction and reduce future costs and problems, plus give you a bit more to depreciate.

- renovating a tenant feature.  Updating a kitchen or bathroom or updating floors may lead to higher rents, but are best done between tenants.

- Adding on, if you have the space, can definitely increase the value of the property and the rents you can collect.  If you add a bedroom or bathroom, do it in a meaningful manner.  I looked at a house last year which had been a 1br 1ba converted into a 3+2.  They put a wall through a large livingroom to make a bedroom, which you had to walk through to get to the bathroom and original bedroom.  They added a third bedroom and bath at the back, that you'd need to walk through two bedrooms to get to.

Are there things about the properties that end up being frustrating or time consuming?  Tenants don't have enough storage space?  Sinks which get stopped up regularly?  a roof which leaks every year?  Think of how you might apply some of your funds to shore up some of these things which will become more of a burden in your retirement.

Glenn P. · Answer

Thank you Terry and Brendon.  Terry - wasn't aware of the September time-frame...I guess that is past the prime selling season so prices start to go down?  And Brendon - I'll think of ways to do that...like maybe adding additional bedrooms?  Or items that enhance curb appeal?

Brendon Woirhaye · Answer

Some good suggestions above.  Also, can you improve the properties you currently have with some of that cash in ways that will increase cash flow?

Terry Martin-Back · Answer

Wait till after September when our Gainesville market falls off. I also encourage you to look at vacant lots and put repo mobile homes on them.  They produce great cash flow... If you have any questions about our market, PM me.

Glenn P. · Answer

Thanks for the feedback....I'll see what I can find.  I really like having all my rentals close by in Gainesville so I can easily drive to them for repairs and showings, but could look at the surrounding areas.  I've been hesitant to go the property manager route but could consider that for any out of town properties.

Arpan Patel · Answer

Agreed. Look for another market. Leveraged long term buys are the way to go right now with how cheap money is. I wouldn't pay down any of the mortgages above what you are doing currently. Find another area and do what you just did again (as far as quality) but you may need to be a little more creative. Happy hunting,

-AP

Glenn P. · Answer

Ok, thanks for the feedback.

Tyler Herman · Answer

I wouldn't buy just because you have the money if it isn't going to cash flow. I'd keep saving, maybe look into another market.