Just Getting Started

[Mark Kovacs]

I’m 39 and have about 20k saved excluding my 401k. My salary is over 100k per year. I have a rental in Cleveland, Ohio I started renting 10 years ago when I moved to Chicago. I’ve had the same tenants in the house for 10 years but it only pays the mortgage. That house has approximately 50k in equity. I can sell it pretty cheap using my close friend who is a realtor in the area. I bought my second house in Bolingbrook, IL in 2012 and now has about 100k in equity. I want to move from Chicago area but my wife is committed to staying. 1) How would you approach the house in Ohio that is not cash flowing without scaring away the great tenants? 2) I want to buy more property and build my portfolio so I can eventually leave my salaried position. 3) would you recommend am LLC or wait until my portfolio is sizable? Several considerations: - I am willing to buy in other states (where would you recommend). - My wife is an accountant - I have great access to Chicago, Cleveland, Minneapolis, and Atlanta with free airfare, meals, and lodging. But do not need to be restricted to these areas. Thanks for any and all support in my journey and I am excited to build my portfolio!!

[James Wise]

Originally posted by @Mark Kovacs:

I’m 39 and have about 20k saved excluding my 401k. My salary is over 100k per year. I have a rental in Cleveland, Ohio I started renting 10 years ago when I moved to Chicago. I’ve had the same tenants in the house for 10 years but it only pays the mortgage. That house has approximately 50k in equity. I can sell it pretty cheap using my close friend who is a realtor in the area. I bought my second house in Bolingbrook, IL in 2012 and now has about 100k in equity. I want to move from Chicago area but my wife is committed to staying. 1) How would you approach the house in Ohio that is not cash flowing without scaring away the great tenants? 2) I want to buy more property and build my portfolio so I can eventually leave my salaried position. 3) would you recommend am LLC or wait until my portfolio is sizable?

Several considerations: - I am willing to buy in other states (where would you recommend). - My wife is an accountant - I have great access to Chicago, Cleveland, Minneapolis, and Atlanta with free airfare, meals, and lodging. But do not need to be restricted to these areas.

Thanks for any and all support in my journey and I am excited to build my portfolio!!

 Selling your current property in Cleveland to buy another rental property wouldn't make any sense. You aren't gonna make any life changing money with $50k. At best you'll make like $200 per month....Who cares about $200 per month?

Currently you have 10 year tenants who's rent pays off your mortgage. That's awesome. THAT IS WHAT YOU WANT! If you go to sell it with them in there you'll loose 10% off the value of the home in transaction costs not to mention how much you loose off the value of the home by selling it with tenants inside of it when it's clearly not a house that is geared towards investment.

So let's do the numbers on this.

• Let's say value of home is $125k.
• You'll spend $12,500 in transaction costs (Realtor commission, Title cost etc)
• You'll loose another $20k selling it as a beat down rental (No 10 year rental comes with fresh carpet & updated kitchens guys)

So right there you're in the hole $32,500. 

BUT IT GETS WORSE!

You lived in the house then turned it into a rental. So i'd guess you've owned it for at least 15 years. When you have a 30 year mortgage the majority of the interest is packed into the beginning of the loan. Especially the 1st 7 years. 

Example; 

• A $100,000 mortgage payment is going to run you about $553 per month (Not including taxes & insurance)
• In year one of your mortgage $438 of that $553 goes towards interest & only $115 goes towards principal. 
• By the end of year 15 of your mortgage $280 goes towards interest with $272 going towards your principal.

BUT IT GETS EVEN WORSE!

Example;

• Your new purchase is going to come with transaction costs as well. Let's say you fully leveraged that $50k & bought $200k worth of property. You've got roughly $8,000 in transaction costs to buy all that new real estate. 

So you'd be trading in $40,500 & an almost guaranteed way to have your mortgage completely paid off for the chance at making $200 per month & almost all of your new mortgage payments going towards interest and not principal.