Whats the Smarter choice to pick?

3 Replies

Hey BP Gang! This is my first official post. I guess I should have introduced myself in the newbie forum but I've been so eagerly busy consuming and soaking all the knowledge this incredible network has to offer! I wanted to get feedback from you guys on something I've been pondering about.

My dad purchased a triplex back in 09 here in Atlanta GA. He's a business owner and he never had full knowledge of what he was doing with the property. He somehow has managed to keep it afloat and running for all these years. He himself did the handyman work along with some friends of his. Due to his age he's slowly leaving all these assets behind and entering the retired realm. He's thinking about passing the property over to me. Currently the place is occupied with 3 families. After all expenses are paid for we bring in a total of $1000 in cash flow per month. It's been fully occupied for the past 3 years now. We used that money we saved from the cash flow to expand our current house that we all live in now. We converted our 4bd 2.5ba into a 6bd 4.5ba. This was a choice my parents made and really wanted to do.

The house we currently live in has around 68k left on the mortgage. We got it appraised for $330k. We bought the house for $151k back in 2001. My question is do we continue to pay down the mortgage, save the cash flow from the rental property until I have enough money for a new purchase or do I add a second kitchen to our current home, make that house into a duplex and find another house to live in? I am also considering refinancing our rental property so I can squeeze out even more cash flow. 

As a side note, after expenses, my wife and I save around 20-25k/year. We started doing this since last year. Please share your thoughts. 

It looks like you're off to a good start, since you're father was involved with REI. I like the idea of a cash-out refi on any of the properties to pay for additional asset purchases. Then, let the cashflow from those add up to pay for things like a new kitchen. However, this is a question that only you can answer, since happiness means different things to different people.

As for the kitchen, using the ideas from rich dad, poor dad, I like the idea of allowing an asset to pay for those type of things-- of course, this takes discipline and has tradeoffs.  For example, when we moved into our new home in ATL from Buffalo, NY, we acquired a kitchen from 1989 and a backyard that didn't have any grass.  Instead of investing this money, we opted to spend it on tearing down some trees, grading the backyard, and updating the kitchen.  We are comfortable with that decision.  But it comes at the cost of not being able to purchase another property this year.

Regarding your question about converting your home into a duplex, I think that depends on whether or not the rehab to do that would be worth it. That is certainly one option. But you may want to talk with a GC to understand the total costs and then estimate a proforma to determine the return. Another option would be to sell the house for a large profit and use that money to purchase other properties that are already setup as MFR.

Of course, I have a friend who is convinced to not use leverage and instead simply pay all debts down as fast as possible.  He's a big fan of mmm (Mr. Money Mustache).  

I'm not sure if this is a help for you or not.  I know its a bit ambiguous, but it sometimes just comes down to which trade-off's you'd prefer.  For me, I don't mind using some leverage, when possible-- especially while the interest rates are still low.

Originally posted by @Wali Rahman :

Hey BP Gang! This is my first official post. I guess I should have introduced myself in the newbie forum but I've been so eagerly busy consuming and soaking all the knowledge this incredible network has to offer! I wanted to get feedback from you guys on something I've been pondering about.

My dad purchased a triplex back in 09 here in Atlanta GA. He's a business owner and he never had full knowledge of what he was doing with the property. He somehow has managed to keep it afloat and running for all these years. He himself did the handyman work along with some friends of his. Due to his age he's slowly leaving all these assets behind and entering the retired realm. He's thinking about passing the property over to me. Currently the place is occupied with 3 families. After all expenses are paid for we bring in a total of $1000 in cash flow per month. It's been fully occupied for the past 3 years now. We used that money we saved from the cash flow to expand our current house that we all live in now. We converted our 4bd 2.5ba into a 6bd 4.5ba. This was a choice my parents made and really wanted to do.

The house we currently live in has around 68k left on the mortgage. We got it appraised for $330k. We bought the house for $151k back in 2001. My question is do we continue to pay down the mortgage, save the cash flow from the rental property until I have enough money for a new purchase or do I add a second kitchen to our current home, make that house into a duplex and find another house to live in? I am also considering refinancing our rental property so I can squeeze out even more cash flow. 

As a side note, after expenses, my wife and I save around 20-25k/year. We started doing this since last year. Please share your thoughts. 

 I recommend you refinance the property and  purchase a larger multifamily outside of it. Make sure you leverage. 

Welcome to BP

I would refinance my current home.  Take cash out for the renovations (check zoning before doing any of this to make sure you can legally convert it to a duplex).  Complete the renovations and then purchase another property with the left over money.  

Then go find yourself another house to buy.

Hope that helps.

Stephanie

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