All Forum Posts by: Chris Ayers

@Chris Ayers, the 3.5% interest rate is the gem in this whole thing.  You are not going to find a loan even close to that for, what is now, an investment property.  However, you have a decent piece of equity and a solid tenant base.  All things to really heavily weigh.

Have you listened to @Russell Brazil in the podcast he recently did.  He talks about this topic specifically.  It is a great interview, and Russell does a great job talking about using long-term holds for wealth building.  It would be worth your time.  Of note, he is also a realtor licensed in northern Virginia and it would be wise to reach out to him.

I am curious if you can elaborate on the $500 worth of expenses each month. That seems a bit high for a planning factor (25%), but if that is realized cost each month, then that will definitely be something for the folks chiming in to consider......I am hoping that is a planning factor for repairs and CAPEX, and you have been setting aside a bit of that ($250 a month or more) for the unexpected capital expenses. Or is it the HOA that drives the number up to $500?

If my hope above is correct, I would say hold it.  I will not be in the majority here, but I subscribe to the wealth building idea long term.  That will not be the case for everyone, and that is fine, but you have an asset in a competitive market that really weathered the crash in 08 (serves as historical reference), with 68.9% equity after only investing 3K of your own money.  That doesn't include the second closing, when you refi'd, so that would be a consideration as well.

Again, without having all the details, this is my two cents. The things that weren't mentioned could force another answer: HOA, CAPEX reserves, refinance money invested, etc.....

Good luck! 

Currently with your $300 cash flow and the $90K in equity you are getting a flat 4% return on that money. That is for me, too low of a return. I also would be very skeptical of the cash flow in the first place. After your mortgage, which I assume is PITI, you are left with $500 per month. No way long term you are only spending $200 per month on maintenance and CAPEX. My guess is that soon you will taking a lot of money out of pocket for some real repairs, especially with the wear and tear of student housing.

I would sell it and give yourself a pat on the back for a couple of years of positive cash flow and increase in equity, and then go and put that equity into other RE investments that give you better returns, and room for your coveted PM fees.

Your FHA mortgage has MI on it. Consider refinancing to a Fannie / Freddie mortgage at 80% LTV cash out. Get 40K from the refinance, then use that as your down on the rentals in NC. Your payments on the student rental should be close to the same that you have now, considering your getting rid of mortgage insurance and now you will have 40K to pick up 1-3 more rentals in NC. This will increase your overall net cash flow and give you more tax write offs (depreciation) among others. You will still be getting the mortgage pay down via all your renters and can always use a 1031 whenever you decide to sell.

I'm not sure what property management would be on a student rental, but its possible you could make enough from all the properties that you could now put the student rental in property management and free up your time. More net cash flow, more free time, more write offs. Build proper reserves and all is good from there. 

Chris Ayers
If you sell try and do a 1031 exchange to avoid taxes on your profits.

In North Carolina can a $400,000 property net more than $2500 a month in rent. I assume it can, if so you will have increased cash flow but would lose out on appreciation in northern Virginia

Lots of agents list at 4.5% in the area. Feel free to reach out with any other questions.

@Chris Ayers Sell, and deploy the cash in a higher ROI market. Turn the new property over to a PM and enjoy the time that is now freed up to find more properties to invest in.

Your mortgage term is amazing, but it seems like you already had the property for a number of years, so I wonder what large repairs you would need to perform in the long-run. I think:

1. If you can't raise rents on the property, this place doesn't seem too profitable despite the amazing mortgage terms. I say this because you're only pocketing $300/month, and if you have to fix something huge, thats all your profit! Moreover, a month of vacancy will hit you like a knife in the chest w/ that steep mortgage. 

2. If you consider other opportunities, I think there are potentials for higher returns. I would not be too absorbed with the great lending terms, because an 5/7Y ARM can you get that rate if not lower. If you are not familiar, with an ARM, I wrote an article about it and give you more details on why its a good strategy.

3. Perhaps consider pulling out of the property, net around $90K, and see if you can buy THREE more properties that can net you that $3600/home/year. Then you'd be making triple the amount! 

4. Don't get attached. Haha.

Good luck brother.

What to do would be a function of your long term goals. Although, I don't have a crystal ball, no one really is expecting the Northern VA market to dip.

So Option # 5 would be to do absolutely NOTHING, and you would more likely than not be just fine 5 yrs down the road.