Stacking method to grow exponentially

12 Replies

Hi BPs, I bought my primary res in Nov 2010 for $125k, I came to closing with  $31,744.99. Zillow says it's value is around 200k. I still owe $83k with mtg of 480$. No escrow. I moved into my now husband's property and rented out my home. Getting the house rent ready has costed $15k masterbath remodel and $7k for new roof. Tenant pays 1350/month until oct 2019. PM fee is 10% monthly Yearly: Insurance 1400 Taxes 1100 Hoa 820 Ive been looking for deals in FL but nothing meets Brrrr with 70% rule. Nor turnkeys for 1-2% rule to buy and rent. I have cash and credit. Looking for mentors. Advice pls. Goal: own 15-20 properties. Interested in midwest market (in,mi,mo,oh) and texas. I like sfh and can look to mf as an option. I like rent to own/lease options for some properties once I grow. I have my primary/rental property. Should i use cash out refi to put down on 2 properties or more? Should I get a $40k loan from my 401k? If i wait til 2020, then I can get a 401k loan out for max $50k. Thats a year for an extra 10k. Is it doable to squeeze min 2 properties from cash out refi and 2 properties from 401k loan? What are your thoughts? TIA!

First, your goals should never include a number of properties...those are the wrong numbers to focus on.

Second, holding the property appears to not be a profitable solution.  However, it appears as though you have more than $100k in equity...just waiting to be used.  So, use it.  Sell the property, take the $100k, and buy a rental that does make "cents"...lots of them.

@Joe Villeneuve thank you. 1. Makes total sense not to focus on number of properties. Running the numbers would take precedent over collecting properties any day. 2. You are correct. I have +100k in equity rn. Is there a way that I can keep this house while getting more? Im cautious of going all in on 1 deal. Is it to buy free and clear or to use as down payment? Would you buy out of state esp starting this new? Im in florida and I can't seem to find properties here although I was using the criteria for cash out refi and max 401k loan. I stumbled upon landlording due to consolidating homes and am such a newbie. Been listening, watching, reading quite a lot.
Originally posted by @Cam Cummins :
@Joe Villeneuve thank you. 1. Makes total sense not to focus on number of properties. Running the numbers would take precedent over collecting properties any day.

2. You are correct. I have +100k in equity rn. Is there a way that I can keep this house while getting more? Im cautious of going all in on 1 deal. Is it to buy free and clear or to use as down payment? Would you buy out of state esp starting this new? Im in florida and I can't seem to find properties here although I was using the criteria for cash out refi and max 401k loan.

I stumbled upon landlording due to consolidating homes and am such a newbie. Been listening, watching, reading quite a lot.

 Just sell the property and don't look back.  Hanging on to a property for any reason other than financial, is an emotional decision...or a bad poker move.  What I mean by that is continuing to feed the pot with a bad hand using the rationalization you have a lot of chips in there already that you would lose if you folded...and that would be completely wrong.

Poker is a lot like REI in this regard. The only time you lose anything, is when you're out of either game. Run out of chips, run out of money, and you're out. In poker, you can lose/fold hands all over the place, and you haven't lost a cent. Why? The chips you put in to losing hands, are not lost...they're just in a different pile on the table. The money you put into a house that is bleeding, isn't lost unless you stay with that house. Get out of it...move on with the cash you have left, and recover the funds you put into the previous deal...plus profits, in the next deal.

You can't play the next hand with no chips...and you can't do the next deal, with no money.

Money is a verb, not a noun...when your money becomes a noun...you lose.

@Joe Villeneuve wow! Thank you for the poker analogy. That really paints a picture. I have room at the table still. :) I have a tenant in place til oct 2019. I wavered between selling or renting prior to getting insight here. :/ But at least it will give me time to prepare for 1031 exchange and pick good investment(s.) I see where there are opportunity costs as I sit and wait.

If you didn't spend 15k to remodel a bathroom, I'd be tempted to keep this house.  The roof I get, but would never spend that kind of cheddar on a tenant's bathroom.  

Then again, I self-manage.  The cost of your PM is closer to 16% year one if they placed the tenant.  Can't grow while getting scraped at every turn.

To grow like you want to, you'll have to do some work.  I just remodeled a kitchen for $80.  I had the flooring, the paint, the rubber cove base, the willingness to do it.  Buy remnants, buy at clearance, buy at yard sales, think outside the box to survive and grow. I also remodeled an entire house for $3500, so I am weird, but there are lots of simple things you can do that save large dollars.

You're stuck with your PM for a while it sounds like.  To get to 15 or whatever rentals, you are going to have to 'expand your box' of creativity and work in your business. 

A cash out refi will net you about $40k if your numbers are accurate.  The cost of capital will be 10%, or about $4k, plus the pain a refi is.  A 401k loan is risky. When you quit, get fired or die it is considered a withdrawal. Cut some expenses and save organically is what I did.  

2 options posted here.  Change your mindset like Joe so expertly does and get off your can like I do.  Do both!

I would recommend selling within the next three years; otherwise, you are going to lose the capital gain exclusion on the sale of your personal residence.

@Steve Vaughan I assumed I was going to buy and hold when I went with the bathroom remodel. Yes. I couldve shopped around or just leave it as is. I figured I could use the remodel as a tax deduction to offset the rental income? The only number needing edit is 80k instead of 83k left on mtg. Ive tried to find something here to no avail. Not even slightly close to break even. And i see part of the reason being is this property. I would love to do both. Keep it at least until I can recoup the money I put into it. Though, i bought this primary res knowing it was a liability. Converting it to a biz has made me reevaluate the numbers and how can I make it work for me. I will sell if I have another property in sight to buy.
@Steve Vaughan he also has a HOA which was glossed over and I’m guessing that’s a nonstarter for you as it would be for me. This just seems like a mediocre to margInal Investment that turned out reasonable due to appreciation
Originally posted by @Steve B. :
@Steve Vaughan he also has a HOA which was glossed over and I’m guessing that’s a nonstarter for you as it would be for me. This just seems like a mediocre to margInal Investment that turned out reasonable due to appreciation

An HOA, too? Bonus! Thought getting a 16% PM and doing a $15k bathroom remodel was bad enough...

@Steve Vaughan @Steve B. I did not look at this buy with an investor's eye that's for sure. Hence, why I stayed in it and kept it for close to 8 years whithout doing much except continue on as a liability. The Hoa went from 600 to now 820 over the years. Yes! I agree with you both on the bathroom remodel. When I agreed on the project, i thought it would be a good selling point but then I changed it to a rental a month into the project. I hired on the PM since I've never been a landlord and I didn't want to be a slumlord. After bumbling into real estate as an asset on the otherside of the ledger, i see the numbers are not favorable with the accrued bad debt tacked on. Now you see why I'm seeking a mentor? Lol this is a lesson learned early on my rei journey. I appreciate the head-scratching-stare-at-each-other-wtf looks. I need that to remind me to keep my rei hat on. ;) Hooray for appreciation! Thanks, guys. All the love. Btw- I am female. ♡
Originally posted by @Cam Cummins :
@Steve Vaughan @Steve B. I did not look at this buy with an investor's eye that's for sure. Hence, why I stayed in it and kept it for close to 8 years whithout doing much except continue on as a liability. The Hoa went from 600 to now 820 over the years. Yes! I agree with you both on the bathroom remodel. When I agreed on the project, i thought it would be a good selling point but then I changed it to a rental a month into the project. I hired on the PM since I've never been a landlord and I didn't want to be a slumlord. After bumbling into real estate as an asset on the otherside of the ledger, i see the numbers are not favorable with the accrued bad debt tacked on. Now you see why I'm seeking a mentor? Lol this is a lesson learned early on my rei journey. I appreciate the head-scratching-stare-at-each-other-wtf looks. I need that to remind me to keep my rei hat on. ;) Hooray for appreciation! Thanks, guys. All the love. Btw- I am female. ♡

 Thank you for the deeper explanation behind your decisions and for taking my comments as positive reminders :)

As someone that has scratched and clawed from nada I have a hard time understanding why everyone doesn't say 'there has to be a better way!' when given expensive and often unnecessary options.  I need to settle sometimes and remember I am not the norm.  I don't have consumer debt of any kind and enjoy doing tasks myself, saving $90k per year.  Not normal!

Here's the thing.  There is always an option C.  Hire a PM or be a slumlord?  Limited thinking that you only have  2 options.  There is always a 3rd option.  How can I make this work a better way is an excellent question and will take you far.

I'd listen to the latest BP podcast with Rock Thomas.  He talks a lot of the creative perseverance RE takes and has an excellent attitude.  He also talks a little about what to look for in a mentorship.  There is a big difference between a mentor and paid coach,  btw.  A mentor relationship usually develops and isn't paid.  The mentee needs an excellent work ethic and passionate curiosity.  A paid coach just needs money. Best wishes to you!