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Started By
Message
Thinking of a different Real Estate strategy
Posted on 9/9/19 at 10:00 am
Posted on 9/9/19 at 10:00 am
When I first got into real estate a few years back, I did months and months of research finding which avenue I wanted to partake in. My initial plan was small multifamily, grow that, 1031 to something larger and larger and to not have a ton of equity in the properties.
In this time, things have gone very well. I've lived frugally which has helped me scale and I'm up to 16k per month in gross revenue. Everything is on 15 year notes. However, I'm starting to have a change in heart.
I'm now 27 and if I buy 3 more 4-6 units deals in the next 3 years, I'll be in the 30k per month gross range and all notes will be paid off by the time I'm 45. I would have a ton of "equity not making money", but wouldn't it be super nice not to have to worry about the biggest expense? Does this sound like a bad pivot?
In this time, things have gone very well. I've lived frugally which has helped me scale and I'm up to 16k per month in gross revenue. Everything is on 15 year notes. However, I'm starting to have a change in heart.
I'm now 27 and if I buy 3 more 4-6 units deals in the next 3 years, I'll be in the 30k per month gross range and all notes will be paid off by the time I'm 45. I would have a ton of "equity not making money", but wouldn't it be super nice not to have to worry about the biggest expense? Does this sound like a bad pivot?
5
Posted on 9/9/19 at 10:10 am to nugget
What are you saying you will do differently? I am confused.
Posted on 9/9/19 at 10:13 am to nugget
If you have equity paid into the rentals, you ARE having your equity make you money in the form of more cash flow per month due to no debt, and Id bet that return is better than you could get elsewhere in the stock market
Posted on 9/9/19 at 10:18 am to nugget
Just checking in to say congrats.
Posted on 9/9/19 at 10:20 am to LSUnn04
quote:
What are you saying you will do differently? I am confused.
As opposed to scaling through 1031, keeping what I have now while adding a few other small properties, paying off the debts. It would be much less risk adverse but wouldn't have the opportunity to grow it to 400-500 units overall.
Posted on 9/9/19 at 10:24 am to nugget
First off, congrats on your ability to do this at such a young age. Also to have the mindset and foresight to start a business like this.
It's really what your comfort level is. Do you want to continue to expand more and more? If so, keep building and don't worry about the equity. The reason you are where you are is because of the business model. On the other side of this, I won't sit here and say having paid off property is a bad thing. It may not be the top financial decision, but the freedom of it is something I can imagine feels good. Even though this is the biggest expense, it's also the biggest leverage to continuing to build your business.
It's really what your comfort level is. Do you want to continue to expand more and more? If so, keep building and don't worry about the equity. The reason you are where you are is because of the business model. On the other side of this, I won't sit here and say having paid off property is a bad thing. It may not be the top financial decision, but the freedom of it is something I can imagine feels good. Even though this is the biggest expense, it's also the biggest leverage to continuing to build your business.
Posted on 9/9/19 at 10:33 am to MrJimBeam
quote:
It's really what your comfort level is. Do you want to continue to expand more and more? If so, keep building and don't worry about the equity. The reason you are where you are is because of the business model. On the other side of this, I won't sit here and say having paid off property is a bad thing. It may not be the top financial decision, but the freedom of it is something I can imagine feels good. Even though this is the biggest expense, it's also the biggest leverage to continuing to build your business.
The explains my predicament much better than I did. Financially, having 600k in equity in an apartment making $6,000 per month net doesn't make as much sense as taking the equity out of it and making more income with it. However, looking at it from a quality of life perspective, I'm wondering if/when that trumps going straight off my "numbers"
Posted on 9/9/19 at 11:10 am to MrJimBeam
quote:
It's really what your comfort level is
bingo. alas, dead equity is dead equity.
like i have stated before, until you have the annual not gross...... but what matters...POSITIVE CASH FLOW to start paying off your rentals 1 a year then it is worth considering especially if he is done now. like some other poster asked awhile back. maybe poochie. yes he will get more cash flow but then a lower COC return if paid off. all up to him.
quote:
I won't sit here and say having paid off property is a bad thing. It may not be the top financial decision,
right, all depends on his situation and his factors.
Posted on 9/9/19 at 11:18 am to nugget
How many units do you currently have? Need to figure what your magical monthly number is that you would like to get too. Then figure out what is the quickest way to get that number.
My goal is 75 units making $200/door a month profit. That's 15k a month. As they are paid off the extra monthly income is just "extra".
My goal is 75 units making $200/door a month profit. That's 15k a month. As they are paid off the extra monthly income is just "extra".
Posted on 9/9/19 at 11:18 am to bamaswallows
Posted on 9/9/19 at 11:19 am to Peejack84
quote:
making $200/door a month profit.
that should always be your minimum PCF.
Posted on 9/9/19 at 11:29 am to Fat Bastard
I have always agreed with the line of thinking in that link. For example, if you have a 6 unit valued at 600k making 6k per month gross, and it's paid off, you'd financially be better off trading that for a leveraged 3M 30 unit complex when looking at cash flow.
However, if you're getting into the 30k-40k a month of passive investments and reinvesting half of that back into other small multi-families, it just feels to me that would be much more comfortable. Now, i know that's a term that is defined differently for everyone, that's just the dilemma I see myself coming into in a few years.
However, if you're getting into the 30k-40k a month of passive investments and reinvesting half of that back into other small multi-families, it just feels to me that would be much more comfortable. Now, i know that's a term that is defined differently for everyone, that's just the dilemma I see myself coming into in a few years.
Posted on 9/9/19 at 11:40 am to nugget
u will
be ok
good problem to have
be ok
good problem to have
Posted on 9/9/19 at 2:23 pm to nugget
quote:
However, if you're getting into the 30k-40k a month of passive investments and reinvesting half of that back into other small multi-families, it just feels to me that would be much more comfortable. Now, i know that's a term that is defined differently for everyone, that's just the dilemma I see myself coming into in a few years.
Absolutely. Real estate is hot right now. Just remember there's good times and bad. Don't continue scaling while its hot without some plans for a downturn of some sort.
Rates are also SUPER low right now. In 10 years we could be back at 10% interest on a mortgage.
Are you building new, buying wholesale, or retail?
Posted on 9/9/19 at 2:48 pm to baldona
Just off market stuff through word of mouth. Nothing on the MLS or through a broker. At this point, I'm done in my local market unless some ridiculous deal falls into my lap that I can't resist. I'm looking forward to the challenges (and passiveness) of long distance investing. I won't find as good of deals on paper but I'm fine with that.
Posted on 9/9/19 at 3:07 pm to nugget
I'd like to learn more at how people go about getting into long distance investing or into other markets they know nothing about. Networking seems like the best way, but am curious of how people go about this.
Posted on 9/9/19 at 4:34 pm to MrJimBeam
My plan is going to be to pick a market first then fly in for a few days and find a banker. To me, a good banker has been paramount. One reason is there is nobody as vested in your success as him/her. What's good for you is typically good for them. They're also well connected in getting you set up with the right people.
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