Strategy Analysis - New Investor

[Andrew Lee]

Currently looking at the following scenario within the next 12 months. Any/all feedback, advice, help will be greatly appreciated! Sell primary SFR which I pay $4,500/mo (PITI). Move into rental with a monthly budget of $2,500/mo. I have a budget of $250k following the sale of my primary SFR with reserves. Purchase four SFRs (3 bed/2 bath) in Memphis one at a time for under $120k. Target rent $1,000 - $1,200, depending on specific location. Once a tenant is under contract, move on to purchasing the next until I have a total of four SFRs. With an all-in budget of $600k. Each property would be on a 10 year mortgage (est. $1,200/mo PITI @ 4%) so I would be responsible for any amount not covered by rent. Use my excess monthly budget of 2k ($4,500-$2,500) to put into paying off the four, ten year loans to pay off within 6 years. Goal is to own the four properties outright in six years, cash out refinance ($400k out of 600k assumed value) to put down as down payment on primary home, and hold the properties as cash flow properties on new 30 year loans. Am I in over my head?

[Robert Clifford]

Andrew,

having ambitious plans, even as a new investor is totally okay! Reach for the heights. The piece of advice that I would submit to you is to never, ever, purchase an investment property that does not cash flow. Your lender, unless they are private, will likely quickly begin denying you loans and you can quickly find yourself in over your head.

Also, if you have that much cash to play with, and you intend to rent when you get out there, house hacking might be a great strategy for you. Basically, buy a multi-family residence, ideally with an FHA loan (3.5% down), and you live in one unit of the residence. Then you will still have a lot of capital to do other things with as well.

Just a thought.

Rob