All Forum Posts by: Brant Jones

Thanks all for the advice. The way I am looking at this is, it will take me 237+ months to make $81k on this property (considering cash flow only), and I agree with @Thomas S. that CA is more of an appreciation market. Am I missing something or should I put my gains to work elsewhere?

I am looking for some advice on my next RE venture. 

I have a small 2/1 SFR in southern California that currently rents out for $1,295 per month with very stable tenants. The property is financed with a 30-year fixed note, and after expenses yields a decent 17.5% cash on cash return. I have owned the property for two years and have realized about $81k in appreciation since acquiring it.

The tenants have inquired about purchasing the property, and after all expenses, the sale would put $83k in my pocket, or a net profit of $51k after taxes, expenses and return of initial investment. I have $95k saved up for my next acquisition and do not necessarily need the cash from the sale of the property, but see this an opportunity to move into a larger multi-family unit or several SFRs, to better diversify my portfolio, increase cash flow and mitigate risk. 

I am still in the cash flow building phase of my overall investment philosophy, i.e. financial freedom, so I would be targeting markets that yield better cash flow rather than rapid (and precipitous) appreciation. I have only invested in raw land outside of CA (no tenants), and like the idea of self-managing my properties, but with CA real estate not yielding great cash flow, I am open to exploring other markets like Memphis, Birmingham, St. Louis, etc.

Appreciate any advice from those who have parlayed smaller investments like this into financial freedom!

@Jarrett T. Great topic! I got started at 23 with very little in savings or retirement accounts, but was fortunate enough to leverage my VA benefits to purchase my first house with zero money out of pocket, and the seller had to make concessions to repair certain things (i.e. all new flooring) to meet VA standards. The house was not in the best neighborhood but was in an expensive northern CA market that has experienced great appreciation over the past two decades. I sold that first property for $100k more than I paid for it one year later, and thought that was a pretty good deal, but fast forward 17 years, that same property is now worth over $500k!

I am looking to branch outside of CA and see Birmingham as a potential market in which to get into for increased cashflow. Being mostly unfamiliar with which areas to focus on (or stay away from), I am seeking a realtor/investor that can help me locate and close on my next deal. Ideally I would like to find a small multi-family unit (2-8 units) in a B/B-/C+ neighborhood, but am open to a SFR in the same type of neighborhood as well; most importantly, I will also need some recommendations on property management companies since I am out-of-state.

Thanks in advance for your help!

With everything else in life, there is always a point of diminishing returns where it might make sense to sell or exchange what was once considered a good, stable cashflowing property into something else because it a) no longer fits into your personal investment philosophy, or b) no longer conforms to the 1-2% rule for cashflow. For example, if I purchase a property for $115k, that rents for $1,300 per month, I would consider this to be acceptable and within the 1-2% rule. However, fast forward a few years and the property now appraises for $230k, suddenly that monthly cashflow does not look quite as attractive as the appreciation I have now realized, and I may be able to more effectively use that equity to achieve even greater cashflow somewhere else.

Most real estate books I have read note that early on in investors' careers, cashflow is the primary focus, but as investors become more mature and sophisticated, they tend to shift toward accumulating wealth through appreciation.

In either case, there is no right or wrong answer, but the flexibility we have to influence our destiny through real estate is what makes this business so attractive compared to other investment opportunities.

@Paul Winka, I also looked at getting a HELOC on a property I own not too long ago where I wanted to pull out my initial investment and rehab costs, but was told by a few lenders they only do cash out re-fi's on investment properties. I didn't pursue other options since I wanted to lower my rate on the property anyway, and moved forward with the cash out re-fi, but would definitely recommend looking at a local credit union to see if they do portfolio lending.

Welcome @Eric S.! Amazing area you live in; my wife and I are planning to retire in Morro Bay when the kids are grown and out of the house. Atascadero is a great town too - my wife always stops by Bucket of Books when we are in the area. I've been researching Bakersfield as a potential area for buy and hold or BRRRR, and would love to find out more about the areas you are targeting there.

Welcome @Robert Jones!

@Sean Murray I am a UoR alum as well and agree the surrounding neighborhoods would make decent rentals - save for the ones directly south of campus. Have you been successful in making student rentals work from a cash flow perspective? My concern would be the vacancies between school years (June through August) and having to account for loss of rent.

@David Dye good point about the funding fee! That can quickly eat up some of the benefit of the cash out with regard to spread on the next deal. I have about $60k equity in my primary residence, so the opportunity to lower my rate slightly AND be able to reinvest that equity in another property (or two) is very attractive.