this question isn't so much about if this is a good deal or not, but more a question of when and how do you decide de to expand your portfolio.
I have several rentals all of which are < 50% equity. I'm considering a property in a good, growing area with a good school district. It would yield 8%-10% but at a minimum 8% based on my calculations.
Id say my cash position is 37% of my total outstanding mortgages.
This is a turnkey property.
What would you consider before making this acquisition? I'm trying to determine if:
1) I'm better served continuing to build my cash or stock positions relative to my outstanding mortgages
2) for only 8% and the hassle of having a rental, is it better to plow the $40,000 down payment into stocks instead (no one can answer this of course)
3) for 8% no rental is really worth it
How do you decide to expand your rental empire or not?
Eight percent cap rate to a ca investor is not bad at all :)
You should continue to build your rentals with this acquisition. a good growing area with a good schoold district will reap dividends in your retirement strategy.
you can focus on stocks or mutual funds with your next bulk of savings.
Howdy @Steve S.
I am not a CPA or Financial Adviser. Just a working stiff like you trying to make it to retirement. This question and the answer can be complicated without knowing your long term goals and investment strategies.
You should develop a plan identifying all your goals and what investment vehicles you will use then it would provide you the answers to needs. No matter if you invest in a 401K, IRA, Individual Stocks and Bonds, Real Estate, Gold, etc., you need goals. Once you determine the goals identify the strategies to help you reach those goal. Then develop criteria that you will use to guide you using each strategy.
like you I also have a diversified investment portfolio. That includes 401K, Individual stocks, IRA, CD, Gold, and Real Estate. They all have different benefits and purposes to me. I have a specific amount from my W2 income that go to each. The money I put into them stays there. I try not to transfer between investments. The exception has been taking a 401K loan to invest in Real Estate when I started. The return on the REI was twice what it was in the 401K so it was easily justified.
My point is where did the $40K come from? Real Estate or Stocks? If it is a result of successful Real Estate Investing and Rental Income then why change. If you are wanting to grow your REI portfolio there is only one way to do it. Reinvest what you make back into it! That's where your goals and criteria come into play. If you have a good game plan then your question "How do you decide to expand your rental empire or not?" would be answered for you. Do you have a desired amount of rental income to achieve or number of units you want to eventually own? Something like $10,000 passive income per month/50 units cash flowing an average of $200 per unit per month. Then you decide how long you want it to take to reach these numbers. 5 years, 15 years, 30 years? The shorter the time frame the more units per year you would need to purchase. Obviously, the shorter timeline may require you to be more leveraged than you prefer. That is a personal decision you would have to make. The timeline may also dictate which strategy (Standard Buy and Hold, Turn-key, BRRRR) and type of investment property (Residential 1-4 units or Commercial 5+ units).
One last thing. Remember stocks are only paper gains (or losses). You do not receive any cash returns on the investment until you sell. Many people lost there shirts in 2008. I had co-workers who lost over $40K in one year in their 401K. Real Estate is a real asset. Yes, the market can drop in RE too (2007). However, there are 5 ways Real Estate benefits you. Positive Cash Flow, Tax deductions and lower rates, long term appreciation, Control over your Investment, and Debt leveraging. Stocks can not do all that.
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