where can i go from here?

Question

I'm 23 and live in whatcom county WA. I just bought my second rental property, in fact its closing on October 1st. My question is now what? I'd like to keep investing in property, but I'm not sure how to go about it. My first rental I bought for 131k with 40k down 1.5yrs ago, and have had renters in it for all but the first month. It generates 1k a month, and my mortgage is about 800 after everything (3.5% 15yr). This second place Im buying for 136k and 30k down on a 30yr contract. Again it will be rented for 1k a month. So should I start paying down the first house? Or continue buying? How should I go about getting loans? Any advice is greatly appreciated.

Michael Quarles · Answer

I'm not a buy and hold guy however it sounds like you're over paying for your properties. That said congrats on deals vs age.

Scott W. · Answer

@ Alex Stredicke - what's your Princiapl & Interest payment per month on each property?

Andrew K. · Answer

Alex Stredicke what condition are the homes in currently? Can you increase the rent by making any low-cost improvements/upgrades to them? Smart improvements to the property condition/features could also "force" appreciation and possibly allowing you to sell at a higher price point. Not quite a rehab/flip, but you could pull your cash/equity out of the deals and move up to other more profitable ones.

Alex Stredicke · Answer

That's what I'm assuming as well. Its $800 total cost per month, so insurance included.

Ken Kim · Answer

What do you mean by 800 after everything? I am just beginning to evaluate properties and trying to see what everyone means by you losing money monthly. I am assuming they are applying the net operating expenses and such and saying that the $200 a monthly cash flow is not nearly enough to cover your operating cost.

Alex Stredicke · Answer

I completely realize a 30yr mortgage is a very long time. The reason I went 30 instead of anything else is because as long as the house is rented, I'll clear $400 a month after my payment and insurance. I already pay $1k on my 15yr mortgage (min $800) so I'll use the extra cash to help pay down my 15yr, then when that's paid I plan on using all the income (2k) to pay down the 30yr. I'm just not sure if I should go about things like that, or instead save the extra income for a bigger down payment on another place.

Ed L. · Answer

It's easy to buy into a house with a 30yr mortgage thinking you will own it free and clear....someday But think about things for a moment. You will be paying the mortgage for 7 years longer than you have been on this earth... That's quiet a long time just to pay them off. Not to mention with a 30yr mortgage you really aren't making any principal reduction until the last 10 years. Along the way you will have maintenance, vacancies, substantial capitol improvements, etc. Without a margin of cashflow you will be eating alot of this out of pocket. It's not all doom and gloom. Hopefully the housing market will rebound and you will get to ride the next appreciation bubble. I'm personally too chicken to do that. I was in your exact position a year ago. Sold the house and made a decent profit. I then re-invested the profits into a sfr that actually cashflows. It's not a super nice home in a A neighborhood, but it's a nice solid older home in a safe, high demand rental area near the local college. I'm doing the same exact thing again this year if everything goes correctly with Fannie Mae.

J Scott · Answer

As other have said, long-term you are losing money on these two properties as rentals. If they were mine, I'd sell both and take the profit; this seems to be a much better solution than to lose money every month.

Dale Osborn · Answer

The more units you can put under one roof the better off you would be as far as investing goes. When we first started investing in SFRs the gurus were pitching 4-plexes. Never got into one, but did sell 2 free and clear houses to buy a 27 unit apartment. That is when we started moving up. You have a plan in place - just like the tortoise & the hare. Slow & sure will get you to a very comfortable position down the road.

Alex Stredicke · Answer

My end goal in the whole thing, is to have some properties paid off and just keep collecting the extra income. I'm not trying to get wealthy (although it'd be nice) I just like the idea of owning homes, and making money without having to physically work for it. That being said if I can make a good sum of money selling one of my homes, I would absolutely do it. I was thinking maybe a du or triplex may be in my best interest? Or looking into buying out of state.