Along time reader, first time poster here who'd like to take the opportunity to thank you for the great advice and insights offered -- and who has some questions remaining :)
What I am basically wondering about is how one can best proceed in the RE business after the first couple of properties. I'll detail our information below, but in short I'd like to hear what others do and what their experiences are with regards to financing, management, location etc.
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Our more detailed situation probably defines me as a somewhat of a mustachian since before the term was coined by the illustrious founder of this site and forum, and thus we bought a condo in 2004 for investment purposes (we payed $ 80.000 for this place).
Our idea was to hang on for it long term and rent it out, using the rent to pay against the principle of the mortgage. Currently, we fully own the place, and modernized two years ago after the previous tenant passed away. Our personal estimate of the value was $100.000-110.000. I have to add thought that an, in my opinion overly optimist, real estate agent told us that he could get $145.000 for it when selling. We currently net $6100 per year after costs and taxes and have another what seems to be long term tenant and can apply yearly rent increases.
We bought a second place in 2008. It actually consists of 2 buildings on the same property and has 10+1 apartments. Whereas the outside was a good shape, the interior was rather shabby, placing it firmly in fixer-upper territory. It is, quite conveniently, located right next to my in-laws place with my FIL having retired in 2007. My FIL strongly encouraged us to purchase the place, which we did for $250.000, and the guarantee that the previous owner could remain in her apartment (the '+1' from above). We invested another $120.000 renovating the apartments one by one, my and FIL doing the bulk of the work. Evidently, we kept renting the other apartments while working, and currently 3 apartments remain to be done -- those three still have the tenants which lived there we we bought the place. Most of the renovating work was covered by the mortgage, though we did pay part of it cash. We currently own $220.000 on the place and just last month refinanced the mortgage dropping it over 1% to the low 3's. Most of the rental income is spend on paying the interest and aggressively towards the principal of the mortgage as well as running costs, cash flow is slightly positive. I have a hard time estimating the current market value of this place, but even in the most negative scenarios don't see comparable properties changing hands for less that $600.000.
Interestingly, the previous owner who moved out of her apartment over two years ago has finally indicated that she starts considering her share in the running cost and property taxes too much of a burden and intends to hand her apartment formally over to us sometime in September. We will probably do some bathroom renovations in October and should be ready to rent starting in November, or if things don't work out January at the latest. Additional net income from this apartment alone should be $7500/year (the other 10 get us a total of around $40.000 -- they are much smaller).
For personal use, we own a house in one of the words most expensive cities and have a mortgage of $705.000 against the rather interesting interest rate of 0.975 (libor coupled -- thus flexible). Current value is estimated between $1.1m and $1.2m.
Since we find ourselves with a bit of cash in the bank, and some wealth ins tone that might be leveraged with new properties, I was wondering about your input with regards to expanding or RE investments.
- Is it best to outright buy some new condo's, with 20% down and the rest straightforwardly mortgaged?
- Is it maybe a better idea to mortgage our current properties and buy cash in hand (we could maybe act a lot faster like that).
- Should we go for condo's, single apartments, or again a multi-unit building?
- When is it opportune to start some geographical spreading?
- And, for a more distant future, at what time do RE investments and having rental properties change from being cash cows to virtual full time jobs that are dreaded?
Thanks so much for your input, and please don't hesitate if info is missing or incomplete.
S.
