Author Topic: Looking for some investment advice  (Read 1456 times)

Bublik2002

  • 5 O'Clock Shadow
  • *
  • Posts: 9
Looking for some investment advice
« on: March 03, 2017, 08:35:32 AM »
I'm 33 years old an in a decent financial situation. I have a relatively high income and fully fund my 401k as well as college plans for my two children. I currently have a personal residence that is fully paid for and 4 rental properties tenant occupied. I have sold off 2 of my other rental properties recently due to the recent market run-up in South Florida and the fact that the cash-flow wasn't strong enough to keep them (I abide by the motto that if I would not purchase them today as an investment property its not worth keeping). I will have approximately 300k in my checking account within the next 1-2 due to the sale of the two rental properties ( 1 sold and 1 on the market).

Here is my dilemma: I plan to retire from my job within the next 3-7 years (however long it takes for apartment complex cap rates to get back to reasonable levels around 10cap) and manage an apartment complex full time. I plan to sell my remaining 4 single family rentals and 1031 them into the complex with additional cash investment.

Should I:
1) Use 300k to pay-off/pay-down mortgages on my 3 rental properties and just use the rest of my income to open a vanguard taxable account and pour it monthly into VTSAX until I'm ready to purchase an an apartment complex.
           Mortgage situation: Property 1: 149k remaining (worth about 270k) at 4.25% fixed 30 year
                                          Property 2: 73k mortgage (worth about 195k) at 4.65% fixed 30 year
                                          Property 3: 120k remaining ( worth about 165k) at 4.65% fixed 30 year
                                          Property 4: 108k remaining ( worth about 132k) at 4.65% fixed 30 year

2) Would you just continue paying the mortgages monthly in minimal installments, roll 300k into a vanguard taxable account and continue to find that at around 8k a month

I appreciate any and all feedback.

monarda

  • Pencil Stache
  • ****
  • Posts: 617
  • Age: 59
Re: Looking for some investment advice
« Reply #1 on: March 03, 2017, 08:48:02 AM »
Since you're going to sell in the relatively short term, I'm not sure how much it matters.
You can calculate the additional rental income from the possibly paid-off properties and add that up over ~5 years to see how the mortgage interest saved compares to what you'd typically earn in Vanguard. Importantly, since you have short-term plans for the funds, you probably should invest at least some of it more conservatively than VTSAX.
It'll probably end up a wash.

What's the ballpark price for an example of the apartment complex you might be considering? Is it your plan to put (1031) all the available >600K (tallying up #s in your post) into such a property?
« Last Edit: March 07, 2017, 07:27:01 PM by monarda »

Bublik2002

  • 5 O'Clock Shadow
  • *
  • Posts: 9
Re: Looking for some investment advice
« Reply #2 on: March 03, 2017, 10:14:09 AM »
Since you're going to sell in the relatively short term, I'm not sure how much it matters.
You can calculate the additional rental income from the possibly paid-off properties and add that up over ~5 years to see how the mortgage interest saved compares to what you'd typically earn in Vanguard. Importantly, since you have short-term plans for the funds, you probably should invest at least some of it more conservatively than VTSAX.
It'll probably end up a wash.

What's the ballpark price for an example of the apartment complex you might be considering? Is it your plant to put (1031) all the available >600K (tallying up #s in your post) into such a property?

I was leaning towards paying off the mortgages considering the fact that the market is at an all time high and I'm not looking to hold for a long term. I just wanted to see if others would have some valuable opinions.

Bobberth

  • Bristles
  • ***
  • Posts: 312
Re: Looking for some investment advice
« Reply #3 on: March 03, 2017, 12:59:14 PM »
Cash for a down payment on the apartment would be a good thing. That would lead to keeping the funds liquid. If you could get a line of credit on your paid off house and the rentals, I would definitely consider that. That would give you a decent 4% return and you would have the liquidity available to make an offer when an opportunity came by.

I assume you are hoping that prices/values of apartments go down since you state you are looking to get a cap rate of 10. If you invest in the stock market, you are hoping that stocks return more than the interest rates of the mortgages you could have paid off. It seems that if you invested in stocks you would be hoping stocks continue to rise at a steady pace but that, at the same time, hoping real estate takes a considerable drop. Not that it can't or won't happen, but I don't see that combination happening together as a high probability.

Bublik2002

  • 5 O'Clock Shadow
  • *
  • Posts: 9
Re: Looking for some investment advice
« Reply #4 on: March 03, 2017, 01:40:38 PM »
Cash for a down payment on the apartment would be a good thing. That would lead to keeping the funds liquid. If you could get a line of credit on your paid off house and the rentals, I would definitely consider that. That would give you a decent 4% return and you would have the liquidity available to make an offer when an opportunity came by.

I assume you are hoping that prices/values of apartments go down since you state you are looking to get a cap rate of 10. If you invest in the stock market, you are hoping that stocks return more than the interest rates of the mortgages you could have paid off. It seems that if you invested in stocks you would be hoping stocks continue to rise at a steady pace but that, at the same time, hoping real estate takes a considerable drop. Not that it can't or won't happen, but I don't see that combination happening together as a high probability.

So if I understand your response correctly you would pay off the current mortgages if you were in my shoes?

Bobberth

  • Bristles
  • ***
  • Posts: 312
Re: Looking for some investment advice
« Reply #5 on: March 06, 2017, 11:28:55 AM »
I think that would be the best way to go if you can get a line of credit you can pull on the paid off properties for when/if you find an opportunity you want to move on.

srob

  • Stubble
  • **
  • Posts: 118
  • Age: 43
Re: Looking for some investment advice
« Reply #6 on: March 06, 2017, 01:01:40 PM »
You could always split the difference and put 150 in a taxable account and pay off 150 worth of mortgage debt.

I know how you feel...I would even jump on an 8 cap apt complex in my area if available, even a true 7.5 if it was nice, but all apartments around here (mountain west) are in the 5's it seems. I wonder if I will ever see decent 10 cap apartments again...right now I have been paying down debt and trying to optimize the apartments I already own but it has been nearly impossible to expand.

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5145
Re: Looking for some investment advice
« Reply #7 on: March 07, 2017, 03:28:27 AM »
"I abide by the motto that if I would not purchase them today as an investment property its not worth keeping..."

In your shoes, I would not make this statement.  When I consider whether to sell an investment property, I look at the look at the likely yields on alternative investments at the time I will close escrow.  I also look at how much of my sale proceeds will be eaten up by selling expenses and taxes.

Real estate is a business.  Generally, the objective of most people that go into the real estate rental business is to establish a large and relatively stable income stream.  Unless you can purchase a better income producing asset with the net proceeds of a sale, you may be better off holding the property and reinvesting capital saved from the accrued income when the market slides.