Author Topic: 6 paid for homes...what now?!  (Read 4320 times)

ibleedirish

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6 paid for homes...what now?!
« on: May 09, 2014, 02:10:23 PM »
My business partner and I have purchased 6 single family residences over the past 3 years with cash. Purchase price varied from 27K-60k. House values now range from 40k-120k for a rough total of 500k. Monthly rent at full occupancy (no problem in my neck of the woods) is 6.5k for a yearly gross of 78k. Not bad for three years work, but honestly it was like shooting fish in a barrel.
Now, prices have risen, although there are still deals to be had. We both no longer want to contribute our own cash going forward as we have growing families and I'd rather start investing heavily in index funds from a diversification stand point. We do however want to grow our rental business. My question for the real estate experts out there is, where would you go from here? All net profit at this point will be used for purchases, so whats the best way to set-up some financing? What numbers should I be using to select these homes? We've been able to basically throw a dart and hit a good deal so far, but I know thats bad business at this point. Out goal is 15 total within the next three years. Am I crazy? Conveniently that would put me at FIRE after my personal debts are paid down.

Thank you in advance!

richschmidt

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Re: 6 paid for homes...what now?!
« Reply #1 on: May 09, 2014, 02:33:53 PM »
My business partner and I have purchased 6 single family residences over the past 3 years with cash. Purchase price varied from 27K-60k. House values now range from 40k-120k for a rough total of 500k. Monthly rent at full occupancy (no problem in my neck of the woods) is 6.5k for a yearly gross of 78k. Not bad for three years work, but honestly it was like shooting fish in a barrel.
Now, prices have risen, although there are still deals to be had. We both no longer want to contribute our own cash going forward as we have growing families and I'd rather start investing heavily in index funds from a diversification stand point. We do however want to grow our rental business. My question for the real estate experts out there is, where would you go from here? All net profit at this point will be used for purchases, so whats the best way to set-up some financing? What numbers should I be using to select these homes? We've been able to basically throw a dart and hit a good deal so far, but I know thats bad business at this point. Out goal is 15 total within the next three years. Am I crazy? Conveniently that would put me at FIRE after my personal debts are paid down.

Thank you in advance!

I'm not a real estate expert (3 sfh rentals, plus 2 apts in our house), which might be why where I would go from there isn't where you want to go. If it were me, I wouldn't go looking for financing but would just use the profits from the current rentals to buy future rentals. Looks like you could purchase one each year, maybe.

Fifteen in three years? AFAIK, your options would be to mortgage your current properties or go looking for private money (hard money lenders or new business partners). But that's already beyond my experience (and desire). I don't think you're crazy, though. :)

ibleedirish

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Re: 6 paid for homes...what now?!
« Reply #2 on: May 12, 2014, 10:23:57 AM »
Thank you for the reply. To clarify, I meant a total of 12-15 over the next three years, so 6-9 more. I'm not sure I have the desire to go much higher than that, as that number would provide the income I need, while we could still manage them ourselves. Eventually I'd like to hand that management off, but the control freak in me is going to have a tough time getting there. :)

Fishingmn

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Re: 6 paid for homes...what now?!
« Reply #3 on: May 12, 2014, 11:24:49 AM »
If your gross is $78k that would probably mean your net is $35-45k which it sounds like is the amount of cash you'd be using to acquire more properties.

Many lenders will require 25% down. If the average house price is in the $80k range that means $20k/house + closing costs so it looks like maybe 1.5 new acquisitions/year unless you shoot for homes in the $40-60k range. The problem there is that most lenders probably are going to be reluctant to finance a less than $50k loan. Not sure you can make your goal of 6-9 more in 3 years if you are just using cash from current operations. You'll probably run into some lending issues once you get past 4 loans too unless you have a small local lender that is okay with more.

Blindsquirrel

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Re: 6 paid for homes...what now?!
« Reply #4 on: May 18, 2014, 06:12:44 PM »
   The cheapest finance is taking out a fixed mortgage in your own names. (Other than cash). I think fannie/freddie will allow you 4 mortgages.  I see no reason why you should change your investment mode though. Calculate how much stocks and bonds you need to generate the loot you make off the houses, I think you will see the houses smoke the stock market for generating income. Would you rather buy a SFR under your control with a P/E of 4-5 or the S&P500 with a current forward P/E of 20+? I do not think you are crazy and going from 6 to 15 SFRs is not a big jump. We run 14 now no sweat. Going from 0 to 2-3 is the huge step, you have made the leap and are doing well.  We gross 142K and count on 71K net off the house operations (only owe on 1 and our own spendy palace) and will move the dial up about 60K gross in the next 3 years and probably call it for our day jobs. (yes, I know this is a GD firehose of cash but we have chosen to help support our ancient parents a ton.)I think you should keep the hammer down while the getting is good. I play the RE game very much not to get hurt first and foremost and in the current market paying cash for houses in cheap markets like yours is a reasonable way to go IMO. Do the math and let me know how it comes out.

ibleedirish

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Re: 6 paid for homes...what now?!
« Reply #5 on: May 21, 2014, 12:11:22 PM »
Thank you Blindsquirrel. I appreciate you sharing your numbers, sounds like you are doing great, and it gives me some good encouragement. I have to admit I am surprised that 14 are no sweat to manage yourselves. Glad to hear it! One of my biggest fears is having to turn things over to a management company. From a profitability standpoint especially, but in addition I've heard some pretty awful accounts of having to very closely manage the managers.

rmendpara

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Re: 6 paid for homes...what now?!
« Reply #6 on: May 24, 2014, 11:46:49 PM »
My business partner and I have purchased 6 single family residences over the past 3 years with cash. Purchase price varied from 27K-60k. House values now range from 40k-120k for a rough total of 500k. Monthly rent at full occupancy (no problem in my neck of the woods) is 6.5k for a yearly gross of 78k. Not bad for three years work, but honestly it was like shooting fish in a barrel.
Now, prices have risen, although there are still deals to be had. We both no longer want to contribute our own cash going forward as we have growing families and I'd rather start investing heavily in index funds from a diversification stand point. We do however want to grow our rental business. My question for the real estate experts out there is, where would you go from here? All net profit at this point will be used for purchases, so whats the best way to set-up some financing? What numbers should I be using to select these homes? We've been able to basically throw a dart and hit a good deal so far, but I know thats bad business at this point. Out goal is 15 total within the next three years. Am I crazy? Conveniently that would put me at FIRE after my personal debts are paid down.

Thank you in advance!

Personally, I've found banks are very easy to work with when you come forward with 30% cash. They seem to be a little less testy about inspections, valuations, etc, when you put up a lot of equity to begin with. That said, your best bet is to hit heavy with cash, possibly by taking out loans on existing properties so you can close on good properties quickly (without getting beaten by cash buyers).

An opportunity like this may not come around soon, if ever, so get to it while the opportunity is still there.

Even in a fully priced market, you can still generate extra cash flow if you are funding with all equity, but that starts cutting into your net income.

JoJoP

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Re: 6 paid for homes...what now?!
« Reply #7 on: May 26, 2014, 05:45:11 PM »
I think its important to keep buying houses while they are affordable in your area.   I live near Coastal Southern California, and nearly any and every home that was purchased in 2011 and 2012 went up 100K.   We were lucky enough to get into high gear and buy as many as we could-- a total of 6 new rentals in the past 3 years. 

  I only wish I had been a bit more daring in the early days of scooping these up... some were bought with private money loans and some were bought with a cash out re-fi of our personal (formerly paid for) home.     I had been committed to staying out of debt, but, that caution easily cost us a 300K in a rising market.   There are 3 or 4 others that we wish we'd completed the purchase on.    The markets will cycle, but there are only so many chances one gets to buy at the lows. 

Our cash flow numbers aren't nearly as attractive as some of ya'll in lower priced areas.   My magic formula is to pay off the loans in no more than 15 years.   but, if they cash flow at all, we know we can bank on the tenants to pay them off and we will be rolling in the dough at retirement time. 

For our 2011-2013 purchases, our numbers are:

SFR-pd 162K, now 275K, rented for $1450
SFR pd 187K, now 325K, rented for$ 1575
SFR pd 225, now 285K, rented for $1450 (this one needs a remodel)
2 on a Lot, pd 287K, now 500K, rented for $2700
Condo, pd 97K, now 110K, rented for $900 (owned only 6 months)
Vacant lot, pd 112, now 225, no income.

Debt tied to these properties is roughly $550K total.
« Last Edit: May 26, 2014, 05:50:06 PM by Jill P »