I plan on reinvesting the money, but I want to climb the ladder up to more quality properties as my cash flow increases and I can buy houses more frequently. This will reduce my cap rate as I go up but get me out of the rough areas.
13.5K house baby. All the way. Again, with an occupancy permit, complete rehab done by the seller. North St. Louis County is a beautiful place to invest if you don't visit outside of the hours of 11am-3pm.
I have a CCW permit for sure and I am well trained. However, I find you get the treatment you give. Be kind and you will get kindness in return. Get to know your renters and treat them right, they'll tell their neighbors that you're good people.
$25,000 will get houses in slightly nicer areas which are slightly safer. Then up to the $50,000 for a little better renters and area, and on and on till I own my block and have to walk 100 feet to the next rental.
I do have experience in this field. I have rehabbed for a profit and have made a significant return on my flip investments. I rehabbed a house in Crestwood and spent a year doing it. It made me ~$16,500 not a good hourly rate but I learned a ton which was part of my goal going in as well as expensing the purchase of the tools.
As far as flips, I have a finder that is absolute GOLD. Our partnership (my finder and I) have made $18,000 in the past three and a half months on an initial investment of ~$22,500. I do nothing but put up the cash, he does all the finding, negotiating, and selling. We haven't even troubled ourselves with fixing them up yet. I have no idea how he does this but I have all of my assets insured and i have everything in a LLC so my personal liability is limited to my initial investment. He is the one who found the investor that wants to buy the houses that are the subject of this post for $17K cash. The market is what someone will pay for it, and that investor will pay that. You are correct, that since a buyer is willing to pay that, it would decrease the cap rate some since I will have an opportunity cost on the money I have locked into the house.
I have two properties that are already rented and cash flow me $950 a month (not counting equity and appreciation). They are both in great condition with excellent renters. My goal is to get $8,000 a month cash flow, pretax from these properties. This will allow me to replace my current income with a 25% cushion for unexpected expenses. After these 13.5K houses are rented, (i already have significant responses from a Craigslist ad... I know, I know... Craigslist :)) the cash flow will be ~$1,100 more a month putting me 25.6% ($2,050) of the way there off of investments that I acquired within the past 3.5 months.
I don't mean to boast about these accomplishments (Pride comes before destruction, and an arrogant spirit before a fall), I just want to let the skeptics out there (again, I love skepticism) know that this isn't a fantasy. Other landlords in this area have fared well according to my research with people in the know. I hope that this all works out as quickly as I hope and I'm FI in several years and continuing to invest! Cautious optimism is the way to go. I am not super excited about the section 8 renters but hope for the best and prepare for the worst is how I like to do business. Worst case scenario, I don't like the Section 8ers, they trash the place and after a year I can sell the trashed house for $5,000 and it'd be a wash. Meh, I TRIED!
I will gladly report back because I hope that some more resilient MMers who are more "type A" like me can use this route to invest less money at a higher rate of return and work their way to that nest egg invested in an index fund and carrying all of their costs of living.
I look forward tot he continued comments and potential pitfalls of this plan. I'd LOVE to hear anecdotes (first hand) from other land lords.
Thanks,
Mike