I'm a Newbie Trying to Figure The Next Step!

[Azita S.]

Hi Everyone,

I consider myself a newbie because the more I learn about REI, the more I realize that I need to learn more!

I currently own 2 grade B SFH rentals in the Phoniex AZ and my primary residence in Portland OR. All 3 have mortgages and equity due to significant appreciation over the last few years. I recently took out $100K HELOC on my primary residence for remodeling and also sold 4 grade D duplexes that I owned out right! The funds have been sitting in a CD while I do my research on my next step.

Option 1 - use the $$ from the sale to payoff the HELOC

Option 2 - use the $$ from the sale  and leverage the equity in the other properties to buy more investment properties.

After being burnt and losing $$ on grade D duplexes in Milwaukee, WI and having great appreciation and return on grade B SFH in AZ, I have decided to stick with buy and hold grade B SFH in the $100-150K range.

I've been studying markets like Orlando, Cincinnati and Indy where you can still find turn key SFH for under $150K with rents ranging $1200-$1500. I can tolerate minor repairs like new flooring and a fresh coat of paint, but don't want the hassle of managing a rehab long distance which I have done once in the past successfully with the right team, but would rather stay away from!

My HELOC payment currently is $522 , so if I could buy $100K property with even 5% return, it would cover the HELOC payment. and if I cashed out the equity in other properties, the returns would cover the increase in the mortgage payment. Once I know the properties are stable and generating cash flow, refinance and purchase more.

 I'm more interested in appreciation and depreciation write off than creating cash flow.  I just need the return covering all the expenses.  My ultimate goal is to do a 1031 exchange for a commercial building in Portland. 

My biggest fear is having low return and not being able to make the payments on all the mortgages especially my primary residence! 

I would love to hear what Pros would say about my plan.  

All feedback, constructive criticism and advice is welcomed.  I'm here to learn! 

[Azita S.]

@Marcus Auerbach   I should write a post about my experience with class D properties to save others time and money.  I know you commented on my last post too where I talked about losing money and what a hassle it was owning class D duplexes in inner city Milwaukee.  

Everything looks amazing on paper!  you pay $20k-40K per duplex and rents avg $500-$600/unit.  You will have good months with all units occupied, new tenants paying $1200 (deposit and first month) and you look at your statement and on 8 units your cash flow is $4K, making your return almost 40% ... then the next month, people don't pay their rent, you get a call from an inspector that the tenent has filed a claim with the city.

The inspector does a walk through and sends you a 4 page list of things to fix!!! Now you got a $7K bill from the management company to fix things that are irrelavant to the tenant!  Things in the basement and attic of a 1910 building that are out of code! which have been out of code for decades!  

Then you get hit with high water bills - you rented the unit to 2 people and now you have 8 people living there! leave the water running, trash the place, not paying a penny after their initial deposit and first month's rent.  Then comes the eviction process, where these tenants are scam artists and know their way around the system.  They will jam stuff in the furnace make it break down and then go to court and say they did't have heat for X number of days, when the PM says they are damaging the furnace on purpose to not pay rent!!

I can write a book about a million ways these tenant will trash your place and make you loose money!  and creative ways they will come up with no to pay rent and avoid eviction!