10 Year Plan. Does this make sense to you?

Buying & Selling Real Estate
9yFollow

10 Year Plan. Does this make sense to you?

Curtis H.
Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes

Hello fellow BP members, 

Does this seem like a good plan for someone who invests part time while having good W2 income and excellent credit?

This seems like a very good strategy for building capital over a 10 year period. In my case...

- I bought a beat up home Sub2 in a great area 2 years ago and fixed it up while living in it and built up $200K in equity. I have satisfied the capital gains requirement and can move on to next house.

- I find another beater in a good area and do it again, while renting out the above house for 2-3 years (I still won't have to pay capital gains when I sell). The cashflow would be minimal, but it would cover the PITI which is my main goal while building more equity.

- Sell the first house and probably net $250K-$300K in profit. I now have been in my 2nd home 2 years, and have satisfied the capital gains requirement. I can move from here and rent it out like I did the first. 

- Rinse and repeat. 

Now this house I'm in currently obviously has benefited from the huge appreciation levels we are seeing in CA. So I don't expect those gains on the future homes, but still they will be nice gains. I would expect $100K in equity per home I sell since I will always buy them beat up and add value, as well as capture appreciation for 2 years. 

- Added bonus would be to take a HELOC out on primary residences during that 10 year period to buy rental properties out of state

Am I missing something here? If people don't mind moving, this seems like an awesome way to go.

0Reply
49 views

Most Popular Reply

Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
9y
Originally posted by @Ron Gosling:

A wise mentor once told me, if you own 10 SFHs, you have tens sets of different problems.  If you own a 10 unit complex, you've reduced the amount of different problems and made common the other issues.  My plan is to take the equity of my six paid off properties and to work a financing deal to purchase a multi-unit property and ideally double my holdings at one shot.  Still a year away but sounds like we have the same goals.  Good luck.

I have owned both multi-family and single family and I have sold off all my multifamily over the years. 

You are correct that some things are common such as a roof and exterior maintenance, but other things like appliances and number of tenants is the same or more.  Yes, you save time by visiting one location. On the flip side, a problem in one of the ten apartment units affects the other nine. Tenant disputes can be a huge time drain and can cause good tenants to leave your property. A problem in the neighborhood will affect all ten apartments. Single family homes are spread around, so a problem in one neighborhood doesn't affect all your houses. My single family homes rent for a higher value than a typical apartment in town, so I can get twice the gross rents per door. For me that means higher revenue and less doors. Less doors means less problems and less time. Don't get me wrong, I know that many large investors own huge apartment buildings. They do quite well. I am just saying for a smaller, part time investor, you cannot beat the passive aspect of single family homes. Way less problems than multi-family. The icing on the cake is that when you are ready to sell, single family homes sell faster. The reason is because there is a larger buyer base, which means if I need to unload properties I can do it quickly.

2Reply
See this reply in the discussion

42 Replies

Jump to latestLatest
  • Brendon Woirhaye
    Rental Property Investor · Whittier, CA · Member since 2014 · 324 posts · 268 votes
    9y

    Make sure you're planning for a market downturn during that time.  If your cashflow can keep you above water during a downturn (assume that rents may be flat for a few years), and ideally be able to draw on your resources to acquire more during a downturn.

    Good job on your first 2 years!

    1Reply
  • Curtis H.
    OP
    Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes
    9y
    Brendon Woirhaye True indeed. The one thing I remember in the TX market during the downturn was that the rental market was STRONGER because so many people were losing their homes. With my above plan, if there were a downturn, I would think the cash reserves I would have built up would help me buy more rentals at the bottom of the market. I was talking to my wife about this plan a couple hours ago and she REALLY doesn't want to sell anything we acquire in CA because appreciation is just ironclad over say a 15 year period. If you can rent it and cover PITI, keep it and watch the value grow. I tend to agree. So that would mean instead of selling my current house, I simply take a HELOC on it to tap into the equity when needed, but keep it rented as long as possible. So in short, anything I buy in CA is more of an equity and appreciation play (which will only be a few properties) and all my out of state rentals will be a cash flow play. Since I make a good living, I don't need to live off the cash flow and will put it all back into paying down the mortgage faster. The goal is in 12-13 years when I retire (at 50!) I will own all my rentals free and clear. If they appreciate nicely during that time, even better. Then sell one of the CA homes that should have $500K of equity or so, and 1031 into a small apartment building somewhere I could afford it. Or better yet partner with someone with experience in that arena and split profits. Then I live off the cash flow of my free and clear rentals and the apartment building. Boom.
    1Reply
  • Ron Gosling
    Philadelphia, PA · Member since 2015 · 17 posts · 6 votes
    9y

    A wise mentor once told me, if you own 10 SFHs, you have tens sets of different problems.  If you own a 10 unit complex, you've reduced the amount of different problems and made common the other issues.  My plan is to take the equity of my six paid off properties and to work a financing deal to purchase a multi-unit property and ideally double my holdings at one shot.  Still a year away but sounds like we have the same goals.  Good luck.

    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    9y

    @Curtis H., your first post seemed very "text book" (2 + 2 = 4), whereas your second post became more personal/partner-oriented. It does look like you're well on your way to: "Boom"! All the best...

    1Reply
  • Curtis H.
    OP
    Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes
    9y
    Ron Gosling We are on the same page there. I'll be tinkering with this plan but absolutely the end game is an apartment building, and if God willing, multiple of them. Classic Monopoly strategy. The green houses are a good start, but it's the buildings that make you wealthy, and your children wealthy. That's what I'm after.
    1Reply
  • Brendon Woirhaye
    Rental Property Investor · Whittier, CA · Member since 2014 · 324 posts · 268 votes
    9y

    I struggle a bit with the small houses vs. bigger ones.  I totally agree with the ten sets of problems concern, and have expected to trade up and up, but the way its gone I have been buying bigger and bigger places, but not trading out of the duplexes I bought earlier.  

    Depending on how inflation goes, my 30 year loans at really cheap interest rates may become very profitable down the road.

    California appreciation can be good, but it can drop pretty big too.  In 2010 I picked up a couple income properties at less than half of what they had sold for during the peak. 

    Of course, you may sell in a trough to take advantage of a better property also in a trough.

    0Reply
  • Sarah Lorenz
    Specialist · Ann Arbor, MI · Member since 2016 · 355 posts · 191 votes
    9y
    I have done this to some degree, and it has always been very profitable. I think live in flips motivate you to buy good deals, because you tend to be a bit more choosy when you are going to live in a place. You also take fewer shortcuts on the improvements. I wish I had done it more aggressively, as you are describing, when I was younger. It becomes progressively more difficult, especially when you have kids. I do wish that I had picked up an owner occupied multi family when I was younger, for some additional cash flow on top of the better appreciating single-family homes. Getting into an expensive owner occupied multi family and using the rents from the other income to qualify, but with 3.5% down, would have been a good move. I also wish I would have held a property that I was going to move back into as a retirement home at some point, so I don't have to pay the appreciated prices and taxes later on. Good luck!
    0Reply
  • Curtis H.
    OP
    Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes
    9y

    @Sarah Lorenz

    Yes with a wife and 3 kids the house hacking becomes nearly impossible. I owned a 2700 sq ft. home at 21 in Texas, then moved to Socal and lived in a 1000 sq ft apartment, then a 1600 sq ft apartment. I now live in a very small 1000 sq ft. home on a very nice street and couldn't be happier. The reason I can't do the multifamily house hacking is because I simply can't share walls and ceilings with other units again. It's not interior space I need, it's privacy and distance. Also there were some weirdos associated with those complexes I lived in, and by myself I could care less, with small children it's an issue. 

    0Reply
  • Joshua D.
    Investor · Columbus, MT · Member since 2013 · 1k+ posts · 1k+ votes
    9y

    @Curtis H.

    Sounds Like a good plan! Make sure you include your CPA in all plans if you are moving forward with it.  We have done 2 house hack deals and are currently on our 3rd one! 

    0Reply
  • Curtis H.
    OP
    Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes
    9y

    @Joshua D.

    How did those work out for you numbers wise if you don't mind me asking? I don't need details, just more like "we cleared $20K on the first, $40K on the second" etc. I'm still open to it, but I don't see it working in a duplex.

    0Reply
  • Joshua D.
    Investor · Columbus, MT · Member since 2013 · 1k+ posts · 1k+ votes
    9y

    Deal #1 was a duplex,

    We paid 70k for it, 12k down 

    Duplex now rents for $975 total, and is worth 135k. 

    2 years after buying deal 1 we bought

    Deal #2

    Purchase 49k sold for 145k cleared 80k, Did repairs myself during this time. Lived for 2 years, NO taxes paid on gain.  

    Deal #3 

    Purchase 85k , estimated ARV of 140k, 10k of repairs.

    Refi in 45 days! ! 

    During this time we also bought 5 deals that are not listed here but would not have been possible without profiting so well from our Owner occupied deals. 

    0Reply
  • Curtis H.
    OP
    Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes
    9y

    @Joshua D.

    Boom. That's how you do it. Very happy for you my man. Hopefully in 2 years I will have a similar story. I'm assuming you did a refi on deal 1 and/or 2 to fund the next purchases?

    0Reply
  • Joshua D.
    Investor · Columbus, MT · Member since 2013 · 1k+ posts · 1k+ votes
    9y

    @Curtis H.

    WE flipped a house and paid off deal 1 about a year ago, and once it was free and clear we set up a Commercial LOC against it for 100k, this has allowed us to buy, rehab, and the refi, while keeping the cost and paperwork to a minimum.

    On deal 2, we pulled a HELOC to fund other down-payments on 2 screaming deals that popped up, then when we sold the HELOC was paid off. and we still received a check for 45k. so our profit was 80k but 25k was already used in other deals, and it was still tax free!!!!!!

    I love owner occupied investing! 

    0Reply
  • Curtis H.
    OP
    Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes
    9y

    @Joshua D.

    Yes yes yes! I'm super excited to hear about someone who has already done what I am attempting to, because somewhere down the line somebody who I respect will tell me how silly this all is. I don't want to move again, I really don't. If I can get another SFH where I live without having to be the owner occupant, that's the ultimate goal, but I will move if I have to. The real benefit is in the rehab. It is SO MUCH EASIER on the finances to fix something up while living in it over a 2 year period. However, once you have affordable access to cash for rehabs, it becomes a non issue. The HELOC is going to be key for me. When you did yours did you have an issue with the bank letting you use those funds for the down payment? Did you have to draw the money out and let it sit for a month or two before using it so it looked like the money was in there all the time?

    0Reply
  • Joshua D.
    Investor · Columbus, MT · Member since 2013 · 1k+ posts · 1k+ votes
    9y

    @Curtis H.

    No issues at all, conventional loan 25% down with HELOC, 75% @4.3% 30 year fixed.

    No money down investing. 

    0Reply
  • Curtis H.
    OP
    Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes
    9y

    @Joshua D.

    Sounds like a plan! Do you have a portfolio lender? I'm assuming they allow you to use a percentage of the projected rents when calculating your Debt to Income Ratio? 

    I have to refinance my Sub2 property in my name first, then do a HELOC. However, I will have a $400K loan now in my name so...

    0Reply
  • Joshua D.
    Investor · Columbus, MT · Member since 2013 · 1k+ posts · 1k+ votes
    9y

    @Curtis H.

    DTI is fine for us at 50k purchases. I could imagine 400k would wipe it out in a hurry.

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    9y
    Originally posted by @Ron Gosling:

    A wise mentor once told me, if you own 10 SFHs, you have tens sets of different problems.  If you own a 10 unit complex, you've reduced the amount of different problems and made common the other issues.  My plan is to take the equity of my six paid off properties and to work a financing deal to purchase a multi-unit property and ideally double my holdings at one shot.  Still a year away but sounds like we have the same goals.  Good luck.

    I have owned both multi-family and single family and I have sold off all my multifamily over the years. 

    You are correct that some things are common such as a roof and exterior maintenance, but other things like appliances and number of tenants is the same or more.  Yes, you save time by visiting one location. On the flip side, a problem in one of the ten apartment units affects the other nine. Tenant disputes can be a huge time drain and can cause good tenants to leave your property. A problem in the neighborhood will affect all ten apartments. Single family homes are spread around, so a problem in one neighborhood doesn't affect all your houses. My single family homes rent for a higher value than a typical apartment in town, so I can get twice the gross rents per door. For me that means higher revenue and less doors. Less doors means less problems and less time. Don't get me wrong, I know that many large investors own huge apartment buildings. They do quite well. I am just saying for a smaller, part time investor, you cannot beat the passive aspect of single family homes. Way less problems than multi-family. The icing on the cake is that when you are ready to sell, single family homes sell faster. The reason is because there is a larger buyer base, which means if I need to unload properties I can do it quickly.

    2Reply
  • Curtis H.
    OP
    Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes
    9y

    @Joe Splitrock

    You bring up some really great points sir. You also happen to have the best last name for anyone living in South Dakota. I just lived in 2 different complexes before moving into this home, and I have to say, the OTHER tenants was my number one motivation to find a home and get the heck out of there. So in a way I thank them. I wouldn't allow my wife to hang a single picture on the wall at that place. We were there almost 4 years. I said, "this place is NOT home, and I don't ever want to get comfortable here". It worked. I had my kids folding hundreds of yellow letters I made on my computer and stuffing them into envelopes. When someone would call they would get so excited and we would play back the angry voicemails over and over and laugh. Good times.

    1Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    9y
    Originally posted by @Curtis H.:

    @Joe Splitrock

    You bring up some really great points sir. You also happen to have the best last name for anyone living in South Dakota. I just lived in 2 different complexes before moving into this home, and I have to say, the OTHER tenants was my number one motivation to find a home and get the heck out of there. So in a way I thank them. I wouldn't allow my wife to hang a single picture on the wall at that place. We were there almost 4 years. I said, "this place is NOT home, and I don't ever want to get comfortable here". It worked. I had my kids folding hundreds of yellow letters I made on my computer and stuffing them into envelopes. When someone would call they would get so excited and we would play back the angry voicemails over and over and laugh. Good times.

     You bring up another point which is that families with kids like houses. People with kids seem to move less often. It is hard enough to keep up with kids activities, let alone spending time to pack up and move. So that is another reason I like single family homes - it attracts families. People with kids are less likely to party or otherwise cause trouble too. Sounds like you are on a good track. I wish you continued success.

    1Reply
  • Nicole FlakesPro Member
    Investor · Houston, TX · Member since 2014 · 23 posts · 22 votes
    9y

    @Curtis H.  I'm sorry.  Maybe I missed something in this conversation, but what were these yellow letter that you mailed to people that angered them? 

    Also, I have to agree with @Joe Splitrock So far, I like SFH because I feel like the risk is spread out. If there is a natural disaster in one part of Houston, it doesn't necessarily affect all of my properties. Also, you get tenants for a longer term in a SFH because it feels more "like Home". Some people stay for a very long time. In apartments, people tend to look at it as "temporary-ish." (Yes, I made that word up!) That's just my research and observation. Either way you do it, your plan is solid. It's just preference. I think that we are ALL on the way to financial freedom but that we are all using a million different maps to our destination!

    0Reply
  • Curtis H.
    OP
    Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes
    9y

    @Nicole Flakes

    You didn't miss anything, it was just me rambling and getting off track. I sent yellow letters to people in foreclosure to try and find my first creative deal, and find a home to live in at the same time. It works I'm living proof. The area I live in I could not afford if I had to buy this house through a realtor. But creatively, I made it work by paying the past due amount and stopping the foreclosure, and taking over the home Sub2. Fast forward to today and I now have $200K in equity because the area exploded in value. I am using this to jump start my 10 year plan.

    1Reply
  • Nicole FlakesPro Member
    Investor · Houston, TX · Member since 2014 · 23 posts · 22 votes
    9y

    Oh gotcha!    So people called you angry?  That's ridiculous. I'm glad that it worked for you.  Wish me luck.  It's my first time doing mailouts.  I'm anxiously awaiting my first set of calls.  lol 

    0Reply
  • Curtis H.
    OP
    Investor · Los Angeles, CA · Member since 2011 · 305 posts · 56 votes
    9y

    @Nicole Flakes

    Good luck! My first call I was all kinds of excited and terrified at the same time. Now that list that was calling me was a list of people over 55 with 40% equity or better in their home, and had been there longer than 7 years. So these callers were just curious what I would pay them for their house. They all were unmotivated. Some said call them back in 2 years when they retire, etc. 

    Then I mailed pre-foreclosures and that was when the funny calls began.

    1Reply
  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    9y

    @Curtis H., I am myself a buy and hold, but let me give you some advice.  In order to grow you need cash.  If you met the 2 year requirement then sell the house and take the tax free gain.  you can immediately buy another fix and flip, and have money to put down on 2 or 3 more properties.  Once you move out of a homestead property the clock starts ticking and you can eventually lose the tax free status.  If selling your home can get you into 2 properties then you have 2 of them earning appreciation.

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free