2 Houses with Equity and 50K - What would you do?

Question

I have a general game plan, but would LOVE to hear what more experienced investors would do with my situation.

First off a quick description of my situation and my goals.

I am 31, we have about 50k in cash to invest and some equity in 2 houses. I worked for a small property management company for 5 years and manage the houses we own, I currently own a small carpet cleaning co. and make a good living (trying to same as much as I can to invest in RE). I am pretty handy and do most of my own repairs and improvements. I am mostly interested in buying, improving, and holding (for now). I am focusing more on the long term and not terribly worried about huge cash flow, although would not invest in a house without a least $100 positive cash flow, preferably $200.

We live in Northern VA, area which is a pretty expensive area... avg home price is $407k in my city. A 250k townhouse can probably get around 1,650 in rent.

My wife and I have owned our primary residence for 3 years...Bought it for 330k with 20% down as a short sale that needed some work and was a steal even at the time. After some small and a few big improvements it is probably worth around 420k. (about 80k in equity, after leaving 20% in)

We rent out my old TH which is owned by a small partnership and can't use any of the equity in that house. So not much I can do there.

We also rent out my wifes old TH which she bought for 170K and is now worth about 220K. We owe about 134k on that house. We rent that one out for 1350/month and net about $100 a month. However, I am certain we can raise the rent next year $50 and PMI will be removed saving another $53/month. The rate is 5.5% so if we refi to pull money out I think we can prob get a better rate too. (about 42k in equity after leaving 20% in)

My plan (at least before talking to you)is to buy one house early next year, put down 20%. Shoot for a house that needs a little work around 200-230k, fix it up and rent it. I think if my numbers are right we can net around $150/ month on that. Once we are set, save up and do the same again with a 2nd house. Being that I am pretty busy with my business, planning on managing, and doing most of my own repairs... I don't really want to buy several units at once.

I guess I am wondering what someone with more experience would do with the equity, is it worth refinancing either house... is it better to refi the rental then my primary residence?

What would you do? Can't wait to hear from you guys...

Account Closed · Answer

It looks like your market is way too high to invest in for cash flow and you're probably going to want to look into other markets to do investing. Perhaps you can find some cheaper homes in areas not too far away from you where you can self manage. But giving the numbers in your question, $1650 for a 250K home is not great numbers. I know you mentioned you don't care too much about cash flow, but that is something I look for in order to hold property for investment. Buying without looking at cash flow can be quite risky. Its good that you have experience in property management and construction, now you just need to find a home that makes the numbers work.

Michael Furcron · Answer

David - I will definitely explore looking a little further south and see if the numbers look any better. We are 20 miles outside of DC so the rental market has been good and not that I am banking on it, but appreciation has also been great. I am certainly not completely opposed to looking outside this area, but I do like the idea of buying as close to my house as possible since I am self-managing. Please don't miss understand, I DO care about cash flow, but being realistic to invest near my house I need to put a good bit down just to hit $100/month cash flow.

Elizabeth - I thought and hoped you might respond. I have read several of your posts and your strategy sounds similar to what I like. If I put less then 20% down I would definitely have trouble getting any cash flow. I also like the idea of paying the houses off and retiring sooner and only recently considered refinancing. I think I could prob swing my next house without pulling money out. I am sure I could find partners and buy more houses faster, but not sure I want to.... I feel like there is a limit to the houses I can self-manage and don't want to get bogged down with houses I have a smaller % ownership in.

Elizabeth Colegrove · Answer

welcome! The great thing is you will hear lots of opinion and thoughts! For many your numbers are too "tight" so they become out of state investors!

On the other hand your numbers is exactly what we achieve and look for. We buy higher income homes in expensive areas. We out as little down in the as possible . Any where from 0-20% (0 is for personals). We both work full time and invest to find an arealy retirement in 15 years. We leave the equity in the homes. The cash flow is reinvested in the homes so we are okay with no high cash flows. At the same time we are paying done our loan!

So your strategy for me would be to leave the equity in the homes and invest in new houses as much as possible. We buy short sales that are cosmetically ugly but in realty are benign.

2 Houses with Equity and 50K - What would you do?

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