Formulating My Buy-and-Hold Strategy, Feedback Appreciated!

[Mike M.]

Hello all, I am about to have some money saved up and I want to spend it smartly. I’ve been reading about real estate and the like for a few years now and I’m really interested in pursuing it for some long-term wealth/security. This will kind of be a long post, so I apologize in advance if this should have been in another forum or a blog- I’m new to this community- so just tell me if it should be somewhere else and I’ll move it immediately.

A little about myself: I'm 27, recently married with a 5 year old daughter. I'm active military, and own one property that I rent out. I am debt free (aside from a low-interest car payment and the mortgage) and I've got some decent money saved up. After my next deployment, I'll have something to the tune of 80-100k in the bank set aside to invest. I bought my condo (high rise, downtown San Diego) in Nov 2012 with a zero-down VA loan that it currently making $650 a month in positive cash flow, which is only $200 a month if you take the HOA fees into account (which has meant in effect that I am taking a slight loss with maintenance). The condos in the same building of comparable value have appreciated from 50-70k in those couple years, by my reckoning. My wife and I make enough that we're willing to put some risk into the money, because we're still going to be able to pay the bills if all this money gets hit by a meteor or something.

I’ve been reading the forums here and my own books voraciously and I think I’m ready to put some options out for general scrutiny. If you take the time to read this, thank you in advance, and please pick apart anything you think might not be a good idea.


STRATEGY ONE
Sell my condo after some minor upgrades, and best case scenario make 70k on it. Add that to the savings and have around 150k to throw around. Use this money to make 25% down payments on 3-4 properties (or a multifamily) in SD or Phoenix (where I’m from and my extended family lives) and from there, use the cash flow to save for more properties. Refinance when it makes sense to maximize returns and continue until 10-15 properties are owned, pay down the loans, and be set for retirement.

STRATEGY TWO
Sell the condo I currently have, then do the same thing as above up until the 3-4 properties (or a multifamily) are bought, but use the cash flow to pay down the principals on the original properties, refinancing when it makes sense until the homes are owned outright and then use the income to buy more properties, rinse and repeat.

STRATEGY THREE
HOLD ON to the condo I currently have, put the saved money into a refinance, and then make at least $800 a month in cash flow. Use the cash flow to pay down the loan, refinance as needed. Assuming the value of a high-rise condo with a view in downtown SD will continue to rise, make use of the cash flow until the value is attractive enough to sell, then sell, use the money to buy more properties, rinse and repeat.

I’m assuming that some of what I said doesn’t make a ton of sense to an experienced professional, but that’s why I’m here, haha. Thanks for reading and any feedback would be awesome.

[Paul Santos]

@Mike M. Welcome aboard. I am new as well and am still absorbing information and getting to know my way around BP. Seems like your biggest dilemma is what to do with the condo. Being in downtown SD that is some prime real estate. There is a lot of  potential for future appreciation. But at the same time, keeping it could be a financial burden. Listening to a lot of BP Podcasts, they tend to advise to stay away from investment properties with HOAs, since as you outlined, they eat up your profits. 

I think you should take advantage of the strong SD market and sell it now and add to your existing capital and go after some good SFRs or Multi family units with positive cash flow and build from there. I am interested to see what the other members advise. Good luck!