I'm off to a good start, but I need advice.

[Nicholas S.]

My job has moved me 4 times in 10 years. I never set out to be an investor, it just happened. But I don't know what I'm doing. I bought a single family home near Charlotte in 04, and one near Cincinnati in '09, and now am living in one in Phoenix we bought in '11

Charlotte worth $146K; equity 46K mortgage 700, rent 1200

Cincy worth 165; equity 5k mortgage 900, rent currently 1100, but can bring 1300 (need to bump it up)

The Phoenix house, we were super fortunate, purchased at the very bottom of the fall-out,and now it may have near 100K equity. Mortgage is 800, would rent for 1300

I'm not a rich man by any means. Taken a 45% paycut at work over a year ago and now make 35K a year. Can you believe my wife stays home with our little ones? Both wife & I's credit 800. Zero savings, zero reserves, zero health insurance - on a wing & prayer. 43 years old.

I'm due for yet another transfer if I want to recoup my 45% pay back (so I can afford at least health care!). Maybe going to Houston or back to Charlotte next summer.

My question is this. If you were me, how would you work out my humble beginnings with these properties to begin building a serious rental property investment empire? When I say empire, I'd like to own 5 to 10 homes that I can build an income and future retirement on. Is there anything I should or could be doing with this equity in the Phoenix house? What about the Charlotte? Oh by the way I've refi'd all the homes to pretty low interest rates.

Would love to hear you guys' thoughts on this - Thank you!

[Sharon Tzib]

Nicholas, you appear to be cash flow negative on both of your rentals, and it's likely you will be on the Phoenix one as well if you decided to keep and rent it. Being an accidental investor, you may never have been taught how to analyze a rental to make sure you put money in your pocket every month. Hopefully you keep a spreadsheet or have Quickbook records of some sort every month on your rentals so you can analyze the profit & loss. Here's how you do that:

Rent - All expenses (taxes, insurance, maintenance, management, utilities if any, 8-10% of rent for vacancy, etc.) - mortgage payment (p&i) = cash flow +/-

If you do this for both of your homes, and they are cash flow negative, then I would be inclined to not want to hold onto them any longer, especially if they are over water and you can sell them now. You are, however, getting tax benefits from both the rentals (hopefully you have a good CPA who knows how to get you all of the appropriate deductions - if not, ask for a referral here), but still, I would not want to be losing money.

Here's what I would do if I were you:

1. Determine where you will be transferred to. If Houston, there is a very solid cash flow rental market there - begin doing your research and attend some REIA meetings. If Charolette, then you'll be in the backyard of Rental #1.

2. Sell your Phoenix house to capture the savings/reserves you will need going forward, especially since you will need them to continue with your goals (mortgage brokers will not loan to people with no money in the bank, and you need peace of mind, as well). I would also sell this home because of the three markets you are in, this is by far the most volatile.

3. If you move to Charlotte, attend some real estate investor group meetings. Try to find mortgage broker,realtor and property manager contacts, if you don't have already. First, verify the $1200 rent is accurate. You appear to be only about $100 away from being cash flow even, and you have a fair amount of equity in the property. You've also owned it the longest, and if you were to sell, your tax liability would probably be the largest since there'd be a gain and depreciation to pay back, etc. Your goal with this house is to try and get it cash flowing, either via increasing rents if possible, lower the mortgage payment, or perhaps if you move there, managing it yourself for a while to save the PM fees.

4. I would sell the Cincy house, for several reasons Even if you raise the rent to $1300, it appears you will be about $250 month cash flow negative still. You would need to raise the rents approx. another 15% to be cash flow even. This will not happen any time soon - that could take years!! You have next to no equity in that property. If you sell, you will need to come out of pocket about $8K to cover the realtor commissions and closing costs, but you could use the proceeds from your Phoenix sale to do that and still have a nice savings available to you.

5. Using the cash flow formula above, locate a one or two rental properties that you could put 20% down on, making sure that you still have ample reserves for the future. I don't know Charlotte well, but if there are cash flowing areas that are decent in the $80-100K price range, I'd target those first, since your down payment will be much higher in a $150K area, such as your first property was, and you'll be able to buy more rentals faster at the lower price point. There are plenty of homes like that still in the greater Houston area. Obviously, some of your decisions are going to depend on where you move to. Looking at the suburbs 30-45 minutes outside of major cities are where lots of investors find good deals and are where tenants are living.

6. Always reinvest all of your cash flow. Rinse and repeat until you have the desired monthly cash flow you want. This could take years, but you're young yet :)

Good luck - I think if you spend more time on BP and you get a good plan, you have actually "accidentally" stumbled onto your future retirement plan!