All Forum Posts by: Jack S.

wanted to update this thread and share that I did manage to buy my first rental property, actually closed on it in may 27 2022. funny how things don't go as planned. the first three months were busy, fixed some problems including, the foundation, flooring plumbing and electrical. I didn't have a renter so I had holding cost, utilities and mortgage until the second week of September 2022 when I finally found a renter. with in six months of ownership the roof started to lose shingles and was leaking, had a roofer to check out the damage and found wood rot underneath. fought with the insurance company to see if they would replace it with a new roof they said no after sending their own inspector and said that the roof was already too old. I went back and forth with the insurance company for another 2 months until I found an insurance claim expert and he managed to get me a new roof absolutely free. roof was fix just 2 weeks ago and now a year later I'm glad to say it was all worth while. the rent is due to increase next month in September.

Sell for capital gains treatment, as @JD Martin said.  Or keep and pay off.  If you do this, set aside funds for repairs on this house.  And then save up for the next one. 

Our current portfolio is a mix of property types. We have a large tier of houses in a laterally trending market in Texas. Their purpose is to cash flow. Our second tier of houses are in a beach side location of Florida, and their purpose is to appreciate. At the top, are a couple of expensive STR properties, which are a cash flow and appreciation play, but riskier than the others, as well as high-touch. I couldn't do the ones at the top without the ones at the bottom.

I do have thoughts of going from all those single family houses to apartments, as I have been collecting houses for about 20 years.

--->My original goal was to replace my enlisted military pension when I got out to be Mom, and I wanted 5 paid-for houses.

@Jack S. What are your long term goals? My first reaction to your question is that you should sell and put the capital elsewhere, mostly because your return on equity (ROE) is abysmal. You could take that 250k-300k profit and put it to work in many other places that will yield a higher return!

Good luck and keep us updated on your decision and your RE journey as a whole. Most of my portfolio and real estate experience has been doing out of state stuff as well. I live in San Diego and own properties in Wisconsin, Florida, and Oklahoma, as well as multiple syndication deals around the country. 

Are you looking for a secure investment or growth? What is your risk tolerance and or the intended gaol? 

Secure - keep the great interest rate, the great property, enjoy the fact that you're paying down the principal at a rapid rate with the 15 year mortgage. Us a HELOC to help you acquire a BRRRR or similar investment.

Growth - Sell it, avoid capital gains tax. Take the $400k and use that to buy $1.5 million worth of rentals. $1.5 mil appreciating at 3% is 45k per year vs the same 3% on $660k, $20k. The cashflow on the current house is good but not great so find a market or a niche that has equal if not better cashflow. 

It’s a good or better situation. Congrats!!

Quote from @Jack S.:

@Bjorn Ahlblad Thank you for the response. It is always good to hear from those that have done it and with many years of experience. Yes the current market is hard to navigate and I understand real estate is a get rich slow business, but I can't help but question if I am leaving anything on the table when I read stories of people scaling from low six figures to millions in a couple of years! 

@JD Martin Haha no, not a realtor and around 30 is right. At what rate would you consider taking some equity? I am in my acquisition phase and want to use leverage to my advantage. I also thought about a HELOC, but it doesn't seem like the right strategy since I am mainly buy and hold and HELOCs are used for repairs and flips?

 Generally the stories of people scaling like that are either liars or engaging in some extremely risky strategies that can just as easily backfire. Real estate is a long game. You can have good timing and get in before things take off, but that's true of almost everything - stocks, business opportunities, etc. Where you're going to make your money is on the long game because in the beginning when you don't need/want that money for your own sustenance (because you have a good job), you can be rolling every dime the thing makes back into the "business" instead of harvesting dividends. That becomes a powerful multiplier. And you are doing this already because you are paying off a 15 year mortgage with the money from the tenant. That's pretty powerful (how come there's 13 years left if you bought it 5 years ago? Did you refi?). So you're already rolling the extra money back into the business, and in 13 years when you're 43 you're going to have what is likely a million dollar asset free and clear. At that point you almost certainly should sell and 1031 (assuming the 1031 survives 13 more years) into a nice multifamily or several SFHs to compound the money since sitting equity is essentially dead equity without being used. Or if the interest rates come way back down again, keep the property and finance 75-80% of the equity out of it then. 

Quote from @Jack S.:

This is a class A property with 1 of the top 5 fortune 500 company in its backyard. The strategy in 24 months is to gradually increase rents between $200-250 on average; even after rent increase it will be below most comparable properties in the area. Modernize community with new pool furniture, gym equipment/decors, carports, storage/garages, electric car charging, add smartlocks, thermostats, improve curb appeal, business center upgrades, etc... 

exit strategy price/unit $194k -> sale price/unit 302k ; exit cap rate 4.75%

 what zip code ?

If it's me, I would run away from class A for now despite who's telling, I will wait til 2025.

Definitely a lot more fees than a typical syndication.  Unless they aren't taking a GP equity waterfall?

The most common fees are 2% acquisition fee, 2% asset management fee, and a 30-40% GP waterfall. 

The fees and structure can vary wildly depending on the deal.  The syndicator should be spelling out clearly how all the fees tie into your return as the LP and what you stand to make over the hold period.  If there isn't clear detailed underwriting in the OM, I would steer away..usually a red flag.