I have 2 rentals and a primary. What should be my next move.
Hi everyone, Thank you for taking the time to read about my situation and give me advice. My goal is to bring in 16k per month with my buy-and-hold properties. I plan on living on 25% of that and using the additional 75% to invest. I am currently focused on real estate 4-6 hours a day and spend the other 8-6 hours a day growing my wife marketing company. We currently live off of her income from her W2 while getting her company off the ground. We keep in a bank account an emergency fund of 3 months' expenses for all rentals.
Financials: We currently own a primary and 2 LTR single families. We no longer want to sacrifice any of my wife's income to invest in our rentals and only want to grow with the income that the business produces. The first property rents for $2,125 per month and its expenses including maintenance and vacancy is $1,350 for a total monthly cash flow of $775. We owe $168k and the home is valued at $220-245k. Our rate is a 3.5% fixed with 27 years remaining. The second property rents for $2,095. Expenses including maintenance and vacancy is $1,400 per month for a total monthly cashflow of $695. We owe $130k and the home is valued at $175-195k. Our rate is a 6.625% adjustable in 3 years.
Lending: I no longer have a traditional income. I have networked and have 2 private lenders that are interested in lending against my new projects. One is offering to lend at a 10% rate for a term of 12 months 100% the cost of the project up to 75k. The second says I need to bring him a deal and show him the numbers on the property before giving me any numbers. He said he does equity splits only at 6-12 month terms. My credit is climbing consistently with debt being paid of that was used to renovate the last property. currently sitting at a 670ish. Both rentals are in my wife's name since she had the W2 income to get the loan. She is sitting at a 720. Her D-to-I is high due to the purchase of our primary home and with us starting to supplement her W2 income with 1099 income. Potentially get a commercial loan or HELOC against the properties to fund additional deals.
Future: I will have all the debt from the prior renovation paid off this year from the rental income. My wife will have all of her credit card debt paid off by July. In July I will be receiving $50k after taxes in an inheritance for investing.
Options:
1: I try to develop one of the two current vacant lots that I own using a mobile home to bring in more rental income without needing to get a new mortgage. I could get the project done between 20-40k. I would do the renovation myself and I expect rent to be around $1,100-$1,500 per month.
2: I try to get into flipping a home in a more affordable area of Detroit. I have not done this before and I have never bought in Detroit. None of the homes I have seen have made the 70% rule happy if I pay reputable contractors other investors have connected to me to do the renovation so I would need to do the work myself.
3: I wait on the quadplex I have been working to get from the landbank. I was going to go under contract but the house had won a grant and will no longer be for sale until the roof has been replaced. I know the landbank director and she said she is unsure when it will be available for purchase again or if the price will reflect the new roof. This house does fit the 70% rule and would cashflow $3,000-5,000 per month after expenses. ARV is $250k and all in we are at $130-150k.
4: I fix our primary and have a second unit built above the garage. There is no garage currently at our primary so we need to build one anyways to accommodate my tools and our cars. It would take me 6 months to fix our primary up and an additional 6 months to build the garage. We would be into the project 30-45k. We would be only paying utilities in the unit above the garage and would have our own separate drive/yard. Expected rent is $2,000-$2,250. Expenses would be $1,550. Cashflow would be $400-600.
5: Wait and focus on getting higher-paying clients for the business we run. Get the funding in July and use that to either acquire the quadplex or add an additional unit. Our credit would be increasing and our debt load would drop by $1,500 per month.
If you have made it this far thank you! I know it is a ton of information to process and I have been going over this 5 times a day in my head. Let me know what you think and what you would do. I want to grow quickly without over-leveraging ourselves and putting everything I have worked at for the past 2 years at risk. Consistent steady monthly income is our ultimate goal so we can achieve financial freedom and work on real estate projects without the loom of our own cost of living over us. I look forward to everything everyone has to say!
Hi Bryan,
Have you considered a DSCR loan? it may be a great option given your wifes high DTI
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#3 Managing Your Property Contributor
- Property Manager
- Metro Detroit
@Bryan H. a lot to process!
You want $16k/month, but are only at $1500 currently.
Going to take awhile to get to that $16k!
Questions:
1) Given your debt for a prior renovation, did you really create any equity in your 2 rentals so far?
2) If not, how are you going to be able to keep doing this?
3) Who told you that you can get HELOCs against your rentals? Typically, lenders won't go above 65% LTV on those.
4) Why don't you have your real estate license?
You might want to PM us to set up a chat for more assistance as I don't like to type as much as you:)
Quote from @Bryan H.:
No offense, but I didn't read your entire post.
Your current rentals are earning you $17,000 a year. If you have a reserve of $6,000 for one property, your annual cash flow could still be hit hard by a bad tenant, or the combination of a bad tenant and a failed furnace.
I'm curious how you manage to spend 4-6 hours per day on real estate. That's a lot of analyzing for someone with no money. I think you'd be better off getting a part-time job to earn another $1,500 a month. Combine that with your rental income and you have an additional $30,000 to invest each year.
Borrowing against your equity is a bad idea. 10% interest? Even if you found a property producing a 15% return on investment, that's only a 5% gain. Savvy investors are looking for 12% return or better.
I'm not a fan of borrowing to borrow. You create a domino chain where one failing property can topple the entire thing.
I recommend increasing earnings, reducing expenses, saving up, and investing from a strong financial position. Building wealth slowly has been proven throughout history. Over-leveraging debt to build wealth quickly has ruined more investors than it's built.
Quote from @Logan Laperriere:
Hi Bryan,
Have you considered a DSCR loan? it may be a great option given your wifes high DTI
Yes, we have. It is going to be the product we use the most in the future. I feel like refiing the 3.5 would be crazy.
Quote from @Michael Smythe:
@Bryan H. a lot to process!
You want $16k/month, but are only at $1500 currently.
Going to take awhile to get to that $16k!
Questions:
1) Given your debt for a prior renovation, did you really create any equity in your 2 rentals so far?
2) If not, how are you going to be able to keep doing this?
3) Who told you that you can get HELOCs against your rentals? Typically, lenders won't go above 65% LTV on those.
4) Why don't you have your real estate license?
You might want to PM us to set up a chat for more assistance as I don't like to type as much as you:)
1 yes. The debt is minor. (7k) the equity built was about 40k.
3 I have talked to some lenders who are willing to lend up to 80 against investment properties. These are local or private lenders and would hold the loan product.
4 I do not want to sell or buy real estate for others. If I want to see a property that is on the market I simply call the selling agent and explain I am an investor, send over preapproval from my private lender and they show me the house. I have not had any issue so far.
We have talked and honestly you guys are great and full of knowledge!
Quote from @Nathan Gesner:
Quote from @Bryan H.:
No offense, but I didn't read your entire post.
Your current rentals are earning you $17,000 a year. If you have a reserve of $6,000 for one property, your annual cash flow could still be hit hard by a bad tenant, or the combination of a bad tenant and a failed furnace.
I'm curious how you manage to spend 4-6 hours per day on real estate. That's a lot of analyzing for someone with no money. I think you'd be better off getting a part-time job to earn another $1,500 a month. Combine that with your rental income and you have an additional $30,000 to invest each year.
Borrowing against your equity is a bad idea. 10% interest? Even if you found a property producing a 15% return on investment, that's only a 5% gain. Savvy investors are looking for 12% return or better.
I'm not a fan of borrowing to borrow. You create a domino chain where one failing property can topple the entire thing.
I recommend increasing earnings, reducing expenses, saving up, and investing from a strong financial position. Building wealth slowly has been proven throughout history. Over-leveraging debt to build wealth quickly has ruined more investors than it's built.
None taken my friend. It is a ton and I wouldn't read it either lol. We have $12,000 in emergency funds plus we have our own private emergency fund if we need to.
Day to day it can varry. I am currently renovating our primary as it needs a ton of work before it would meet our rental expectations. I am working on 2 sets of plans to develop one lot and add an ADU to another so that I can show lenders when they request plans on execution. I do spend an hour or so networking or running numbers on deals sent to me from wholesalers. If there is nothing to be done I focus on lead generation for the marketing firm which has been very fruitful. In the last week, I have brought in around $2,000 in additional monthly income for higher-paying clients to replace older smaller ones and might start outsourcing some of the mundane tasks to VA's to free up more time for client calls.
10% would be on a private 12-month loan. Not something to buy and hold. I totally agree with limiting borrowing and it does kill investors.
I know you did not read everything but your insight was still awesome and I appreciate your response!
Quote from @Bryan H.:
Quote from @Logan Laperriere:
Hi Bryan,
Have you considered a DSCR loan? it may be a great option given your wifes high DTI
Yes, we have. It is going to be the product we use the most in the future. I feel like refiing the 3.5 would be crazy.
Yeah 3.5% is an awesome rate.
WOW that's A LOT of writing to say, hey how do I get to 16k a month. Just buy more rentals. Refi cash out, bring on a partner, or find props with seller financing, much easier than a bank. Yes, its that's simple.
Quote from @Bryan H.:
One thing to consider: partnership.
You have time, knowledge, and experience, but not enough money. There are a LOT of people that have money, but no time, knowledge, or experience. Focus on networking, building relationships, and finding people with money to partner with.
It's important to have a strong partnership agreement, detailing who pays for what, who is responsible for management and making decisions, how you handle the cost of maintenance or other expenses, how to end the partnership if someone wants out, etc. I highly recommend involving an attorney, but also working with an experienced investor with partnership experience to hash out details that an attorney may not think about.
It would also help if you can build very short presentations to show wanna-be partners your experience, your current results, projected returns on an investment, etc. You want to look professional, but you have to explain it simply so a non-investor can understand what they will get out of it.
Quote from @Nathan Gesner:
Quote from @Bryan H.:
One thing to consider: partnership.
You have time, knowledge, and experience, but not enough money. There are a LOT of people that have money, but no time, knowledge, or experience. Focus on networking, building relationships, and finding people with money to partner with.
It's important to have a strong partnership agreement, detailing who pays for what, who is responsible for management and making decisions, how you handle the cost of maintenance or other expenses, how to end the partnership if someone wants out, etc. I highly recommend involving an attorney, but also working with an experienced investor with partnership experience to hash out details that an attorney may not think about.
It would also help if you can build very short presentations to show wanna-be partners your experience, your current results, projected returns on an investment, etc. You want to look professional, but you have to explain it simply so a non-investor can understand what they will get out of it.
That is an AWESOME idea. I will definitely do that. I think partnering would be a better option compared to getting private lending anyway. That presentation idea is gold. 1-3 minutes max in simple easy to understand terms.
I wouldn't get full employment at a very chill job.
Security , Mall job. ., etc.
Cold pull in some cash for another down payment. .