Posted about 2 months ago

I Own 4 Rental Properties, Now What?

My wife and I bought our first triplex in March of 2017, 4 months before our oldest daughter was born. From there, we purchased a single family house that December, a duplex in January of 2019 and another single family house this past July of 2020. We used cash to finance the down payments on our first two places, took out a home equity line of credit on our primary residence to pay for the down payment on the duplex, and refinanced our first single family house and primary residence to pay for the down payment on the new single family house. 

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All our units are leased up, and all of our tenants have continued paying rent even with all of the COVID craziness, so our reserves are in good shape. But we're cash poor when it comes to picking up another property. So now, in order to buy our 5th place (my goal is to have 20 buildings averaging $400/month in cash flow in 7 years) we need to get creative. 

There's a few ways I've heard people going about doing this. The one that is the easiest to understand is going out and earning the cash to do it, probably through a flip. I've never done a flip and am not sure that's what I want to do right now. 

Another option would be to do a BRRRR deal (Buy, Rehab, Rent, Refinance, Repeat). Basically, you find a place that needs work, buy it for a whole lot less than what the after repair value would be (ARV), fix it up, then refinance it to get your money back out of it. To finance on the front end, you could raise private money, do a construction loan (North Shore Bank in Duluth has a pretty cool program for it) or use hard money to fund the acquisition and construction costs with little out of pocket. Then, when you go to refinance, you can walk away at closing without having to sink a lot of your own cash into the deal. 

Another option would be to do some creative financing, like a contract for deed. I could try to find a seller who'd be interested in holding the note or the deed on the property and basically act as the bank wherein I'd be paying them a negotiated interest rate over a certain number of years. I've never approached someone to do a contract for deed, and with the way the market is (homes selling like hot cakes) I don't know how interested most sellers would be in that. 

Or, I could just wait for the cashflow to pile up and use that as the down payment. Between the 4 places, we should be cashflowing around $1875 a month, so after a year, we should be looking at a little over $22,000. That would be enough for a down payment on a $100,000 property, but there aren't many of those around in Duluth anymore. 

So, what do you think? Of those 5 options, which one is the best move to get property number 5?