Looking for guidance - here’s the scenario, your thoughts?

[Craig De Borba]

Hi All,

I’ve been learning a lot reading though the threads in this community and finally have something to post about.

My background: RE appraiser and loan financing way back pre-2008 crash, helped family landlord multi-units while growing up.

Situation:
Inherited a duplex but thanks to the change in California Prop 19 it will be reassessed to current market value. This reassessment will be a 1,000% increase in property taxes eating the cashflow. There is a mortgage on the property for 20% LTV (~3.7% int rate). I hope the rate passes and is not refi to todays rates, but I don't know how that process works via a Trust.

My plan: 
Sell this property and use as a seed to build a portfolio out of Calif. that I can retire with in 5-10 years, and eventually turn these 2 doors into 20 someday.
Due to current interest rates + tax reassessment, cash out refi to acquire more units will make it negative.

Some basic location criteria
1. States where I can get more for my money. I think I can turn these 2 doors into 8 or more.
2. States that are landlord friendly
3. Lower property taxes, good economic growth, low unemployment

I live in Texas but prices here are getting really high, unless I am looking in the wrong area. Other out-of-state areas I have seen mentioned in the forum are: Ohio, Arizona, Oklahoma, Arkansas.
Any suggestions for geographical location?

Starting with $500K cash + financing I could increase purchasing power to acquire more units vs. paying all cash.

Would you put the min down payment (20-25%) and finance the remainder or pay all cash and not carry any debt?

The properties need to cashflow or at minimum pay for themselves, because long-term goal is to replace my job income.

Considering circumstances and long-term goal, how would you do this?

Thank you

[V.G Jason]

Quote from @Craig De Borba:

Hi All,

I’ve been learning a lot reading though the threads in this community and finally have something to post about.

My background: RE appraiser and loan financing way back pre-2008 crash, helped family landlord multi-units while growing up.

Situation:
Inherited a duplex but thanks to the change in California Prop 19 it will be reassessed to current market value. This reassessment will be a 1,000% increase in property taxes eating the cashflow. There is a mortgage on the property for 20% LTV (~3.7% int rate). I hope the rate passes and is not refi to todays rates, but I don't know how that process works via a Trust.

My plan: 
Sell this property and use as a seed to build a portfolio out of Calif. that I can retire with in 5-10 years, and eventually turn these 2 doors into 20 someday.
Due to current interest rates + tax reassessment, cash out refi to acquire more units will make it negative.

Some basic location criteria
1. States where I can get more for my money. I think I can turn these 2 doors into 8 or more.
2. States that are landlord friendly
3. Lower property taxes, good economic growth, low unemployment

I live in Texas but prices here are getting really high, unless I am looking in the wrong area. Other out-of-state areas I have seen mentioned in the forum are: Ohio, Arizona, Oklahoma, Arkansas.
Any suggestions for geographical location?

Starting with $500K cash + financing I could increase purchasing power to acquire more units vs. paying all cash.

Would you put the min down payment (20-25%) and finance the remainder or pay all cash and not carry any debt?

The properties need to cashflow or at minimum pay for themselves, because long-term goal is to replace my job income.

Considering circumstances and long-term goal, how would you do this?

Thank you

I stopped there-- you won't. Or if you're definition of retirement is vastly different than mine, maybe you will but it just does not work that way.

For the rest of the forseeable future, we will have a higher cost of capital. That alone is going to mitigate the cash flow and lower the appreciation. Combine that with perpetually higher inflation that's going to help hedge the appreciation, but keep your costs high to maintain. This isn't 2010 where you can buy properties in good areas for $115k and make $1,500 in rent and do that for the next 4 years and scale up to 20 properties with $20k downpayments. People who give advice that did it then have not evolved and see this as a "bubble". This is the new norm.

Financial independence will take 8-10 paid off doors in good areas, with likely 100% in reserves(full capex, vacancy, tenant turnovers) per house. That will take a long, long time. Lucky in 15 years, very lucky in 10, possible in 20-25 if you start in your early 30s or younger.

I would re-do your goals.