Cash flow and upgrades

[monarda]

Hi, Greetings! I'm brand new here,  I'm curious what you guys think of what we have going, and hope that you can answer a question about financing the upgrades we have planned.
I've been interested in the assorted rules of thumb that are mentioned in the threads I've read so far (e.g. 1%, 50%). [Where can I find a summary of other good things like that I should know?]

We own four buildings, rent out three and live in one, we manage all the properties ourselves.
We got into real estate because we hate Wall Street.

Here's the portfolio. We have great tenants. Learned a lot over the years about screening.
 
A: 2 family house  - purchased 2001($171K), gross total rental income $1800 monthly, 5% 30 yr loan (Loan balance to current value ~55%)
B: 2 family house - purchased 2001 ($156K), gross total rental income $2000 monthly  LOTS of upgrades being done on this house. 4% 15 yr loan (Loan balance to current value ~ 50% or better)
C: single family - purchased 2006 ($130K), rental income $1000 monthly, ARM interest only loan, want to SELL this house before we have to start paying significant principal in 2016. Loan balance to current value ~58%
D: single family (where we live) purchased 1995, added on twice, recently refinanced, 3% 15 yr loan (LTV~60%)

House B needed a new roof and at the same time we decided to turn the attic into living space, adding dormers. That project is still in progress, we're currently taping drywall and installing hardwood flooring (reclaimed). Doing this work ourselves. When it's done, we're guessing this unit will rent for $500-800  per month (500 if no kitchen, 800 with kitchen).  We've paid for the roof and all the upgrades so far in cash, pulled out by refinancing houses B and D in 2011, as well as our rental income cash flow (see below). Once we're done, of course the property taxes on this house will increase.

If we weren't putting money into house B, we'd pay down the house A mortgage. Of our rentals, House B is in the most desirable neighborhood, and we intend to keep this place long term. We also intend to hold house A. If we sell C in the next year or two that could change my question below. We also want to add on to our house (D) again.

Cash flow from rental income from houses ABC right now allows us to pay all four mortgages, taxes, and insurance with enough left over to (barely) live on without counting any income from either of our day jobs. So we have a free place to live, basically.

My logic in the slow remodel on house B is that we would do most of the finish work, we hire contractors for all the  framing, plumbing, electrical, HVAC. There's no rush in getting the attic finished.   We just want to do what makes the most sense.

Now, here's my question.
I have about $30K liquid in cash (just sitting in a checking account, not smart for long term), no debt outside of the mortgages.  I can use this cash for speeding up the upgrade to the attic, paying down loans, investing otherwise, or keeping on hand since my day job is not permanent (soft money) and just in case we need it (which is why I have it sitting in checking - while I learn what is the smartest thing to do).

We could speed things up. Having it rentable a year sooner would mean $5K-$9K  (accounting for prop tax increase) more annual rental income. 

Since I'm a newbie here, if there's a post or thread I should be reading, please point me in that direction.

So, what would you mustachians do, and how am I doing?  Is there a rule of thumb for cash flow?

[Seeking the Brass Ring]

Hi,

There have been a few posts in the past about cash flow/cash reserves when you have multiple properties.  I've only got one income property but here's my thinking, keep enough cash on hand to deal with small to moderate expenses I.E. new refrigerator or new carpet or hiring out painting.  I have a Home Equity Line of Credit that is the Extreme Emergency fund in case we have a large expense like a new roof.  The idea being that the line of credit is easy to access and would only be used for a month or two until some money could be freed up from other investments. 

As far as what to do with $30K I'd ask you what your goals are.  Do you want to pay down mortgages to free up cash flow?  Do you want to shop for another property?  It sounds like you've got an awesome start and have lots of options.  For me that's what it's all about, doing what I WANT to do instead of what I HAVE to do. 

[monarda]

Thanks, Seeking,

Goals? Well, in our town $30K isn't enough to consider another property yet. But that possibility is on the list, maybe, for the longer term. Maybe with a partner. Decent two-flats or three-flats with good cash flow numbers are $300K or more, so we're a ways away from 20% down.  You're in Madison, you've probably seen what's out there.

Our house, D, after two additions is still only 1100 sf.  We really need another room. 1500-1700 sf is perfect for us. (We learned that when we lived in house C, which I didn't mention is 3 hours away.)  Our builder drew us plans for adding a partial upstairs - which we plan to do with cash we get from selling house C someday. We priced it,  what we like costs $325K if we were to move instead of adding on. It's definitely going to cost less than 100K to build the upstairs (again, we'll do a lot of the work).

Other goals? We live quite frugally now. We take short, inexpensive vacations and splurge by eating out once or twice a month and heading to Europe every couple of years.  With more cash on hand we might indulge a bit more, but it's not like we're depriving ourselves now. I haven't calculated our actual annual personal expenses, but that won't be difficult to do.

Paying down mortgages won't free up cash flow for at least 10 years. House A is going to need a roof in less than 10 years. In 15 years when houses B and D are paid off (assuming we keep the current loans and don't prepay) we'll both be 67.

I looked at some of those older threads. It does seem $30K is much more than we need to keep on hand. I'm wondering if we should pay our builder about 10K to finish things up for us a bit quicker, and then think about other options for the remaining 20K just sitting there. Also, I'm not counting about 10K more for personal emergency fund, and 5K in tenant deposits. Both our cars have over 200K miles, but are running great.  Say we do buy another property in the next 5 years. What do folks do with money they're saving for down payments?

Thanks.

[monarda]

OK, I found the FAQ page about where to park money for the short term. Sorry about the newbie questions.

[Seeking the Brass Ring]

What do folks do with money they're saving for down payments?

It's a good question.  I'm asking that one myself.  For now I'm in a money market account which is doing only slightly better than savings accounts and CDs.  Like everything else it's about risk tolerance and future plans.