Snowballing rentals to buy more Rental's

[Kevin Tarver]

hi everyone this site has been great. I have learned soo much in a few days.

I saw this yesterday and wanted to ask. Snowballing my investments is it a great idea? I want 4-5 rentals. and having 2-3 paid off would help. I'm in it for the long hual but dont want to carry debt for so long. thanks. Also is there anywhere someone can point me to on how to prepare to ask for funding. The best banks for new investors or is a broker better for a first timer? Thanks again.

[Mark Turner]

I'm not sure I can answer your questions on the banks, but for me I went to all of my local banks and introduced myself and opened accounts there to begin relationships.

Right now, I have loans with 2 banks, had 3, but refinanced.

I think different people will answer your question on debt differently. For me, 10 years ago I would have said pay off all your debt first then move on...now I'd say debt is ok.

Rates are the lowest I've seen in awhile. If you wait to pay off current debt, you rates may be twice as high in 5+ years. I have used debt to buy more properties and am not afraid to refinance or leverage. I've used personal and retirement vehicles to purchase investments.

At the end of the day...you need to be comfortable with your strategy.

[Kevin Tarver]

@Mark Turner thanks for the advise. when you went to the banks. did tell them it was a rental/investment?

[Kenneth Hynes]

@Kevin Tarver

Kevin - I think you have to tell them it will either be an investment property or an owner occupied prperty. The rates/ down payment will be higher for the investment , as teh banks see more risk there .

[Mark Turner]

You have to be straight with them...you are an investor. I have a couple people here that call me when rates come down or they have a promotion, etc. They will treat you differently too if they know you may come back to do more.

[Kevin Tarver]

@Mark Turner My interest is in Rochester would you have any insight on a location for first timer like me to start. I looking for a 30k-40k property.

[Mark Turner]

I haven't bought in the city of Rochester, but the suburbs around it. Try connecting with @Mark Updegraff he knows the market.

[Kevin Tarver]

thanks @Mark Turner

[Steve Santacroce]

I'm hoping Mark will say the same thing I do. You don't want to start investing in Rochester on 30-40k houses. You need to find yourself a VERY good property management company that has experience dealing with the headaches and issues that come with houses in those kinds of neighborhoods. If you want a fairly turnkey property, expect to pay at least 90k for a nice duplex that could give you a reasonable amount of cash flow.

[Kevin Tarver]

@Steve Santacroce really duplex is used alot in the forums are they the move? I would think a bit less trouble?

[Andy Robison]

Originally posted by @Kevin Tarver:
@Steve Santacroce really duplex is used alot in the forums are they the move? I would think a bit less trouble?

Duplexes are used quite a lot along with tri and fourplex as a "good" beginner strategy. It mainly boils down to having 1 property and 2 sources of income. If you have a duplex and one goes vacant you at least have the other side covering mortgage and taxes. If you have a SFH and it goes vacant.... 0 income and your on the hook for mortgage and taxes.

[Frank Oudheusden]

I own property in Rochester and have worked with @Mark Updegraff and I highly recommend him.

While duplex's are good for lowering risk (more streams of income to cover expenses) you will get a premium rent for a single-family home and a different type of renter, perhaps one that will stay long-term.

Overall I think the duplex vs. SF argument is a bit overblown.

A. Once you have several SF's your risk is virtually the same since the other properties in your portfolio cover the loss of the single vacancy.

B. If you can find the right tenant up front that will stay a few years and your diligent in your fundamentals in putting vacancy cash aside every month you can mitigate this risk quite easily.

My suggestion. Know the calculations cold and buy whatever pops up that makes sense (SF, MF, etc). After you've acquired a few rentals the portfolio will support itself. It's the first one that's the riskiest and if you're making NYC income and investing in 60-100k homes in Rochester, the risk is low if you listen to experience and build a strong team. I live in Maryland and invest in Rochester so it can be done.

[Kevin Tarver]

@frank

@Frank Oudheusden thanks man you make sense. what should I aim for as far as a down payment. 10k 15k? I have 10k ready to go. but I don't own anything, I finance a car. any thought guys. how much did you put down on your first home what did you buy for?

[Frank Oudheusden]

My first property was a killer deal which I've highlighted on BP before.

http://www.biggerpockets.com/forums/48/topics/84542-the-story-of-my-first-deal

Cash down depends on your financing. Assuming you're doing a conventional 80/20 mortgage (20% down) and you're buying a SF at $65k your down payment will be 13k. You'll need 4k or so for closing and reserves (since its close to the beginning of the year you'll need to reimburse the owner for their prepaid taxes) and probably dump 5-7k into fixing the place into a rent able condition. All in I'd think if you had $25k in the bank you could make a nice single family home work which is very similar to my first house.

Rents at this price point would need to be $1000 or so to see $200/month cash flow which is where I usually target. $1000 rents are normal for 3 bd houses and 65k is reasonable for that size so that's where I would start. 3/1's are more liquid than other houses since they are more widely desired size.

2br houses will sell for the 40k range where your all-in will still be ~$17k (8k down, 3k reserves, 6k rehab) and the rents will be lower $750-$800 depending on the area. You may still make a $200 cash flow but it all depends. Lower cash invested with the same cashflow is a higher return.

Like I said it all boils down to know these calculations cold and buying whatever pops up and makes sense. If you see a 2/1 in a killer location in great condition...take it down by all means...$200/month is cash flow no matter how big the asset.

[Kevin Tarver]

thanks @Frank Oudheusden looks like i have some saving to do.

[Elizabeth Colegrove]

@Kevin Tarver

My personal goal is to get as many houses as possible while the low house and interest rates still exists. My personal thoughts is take advantage of cheap money and houses as much as possible. When the markets go back up, like they have in every other recession and I can't find any more deals. At that point I am going to work on paying them all off. This way I can rinse and repeat, buying more houses in the next recession.

[Kevin Tarver]

@Elizabeth Colegrove great thinking thanks everyone for the info.

[Mark Updegraff]

Thanks @Frank Oudheusden & @Mark Turner! I love city investing, though sometimes it isn't for the faint of heart :D Frank and I just closed a deal together, and we're pretty sure it will be a superb addition to the city portfolio. I'm not sure why a lot of people start off telling me "I'm looking for investment properties NOT in the city" They're nuts IMO. If they choose to spend their money in the burbs, they better be ready to shell out more capital for a weaker ROI if they're shopping the MLS.