Shift in real estate strategy - what would you do?

[Aaron Shutt]

Hello everyone. I've read these forums for years, but first time posting. As I mentioned in the title, I'm working on a shift in investing strategy and curious what you would do.

First, some background. I'm 32 years old, and my wife and I started buying here in southern Michigan back in 2009. Obviously there were lots of good deals, and in the intervening years we've ended up with about 25 units over 10 buildings. We've mostly used cash or lines of credit and have very little debt. Everything cashflows well and it's all I do for work (management, renovations, etc on the properties).

In our market, we're finally at the point where property values have appreciated enough to be worth selling even considering the good cash flow. We sold one duplex back in the fall, and are hoping to list/sell three more buildings in the next few months. We used the proceeds from the duplex to pay off some debt, and anticipate raising 200-225k net on the additional three (yeah, this is the midwest :) )

Basically, I'm feeling spread thin and hoping to consolidate a bit while the market is strong. I'm envisioning having a core of 20 units or so that are renovated and in good neighborhoods for cash flow purposes, and then doing something else with the cash proceeds from the sales - I'll need to replace the income from those sold properties.

Here's what I'm thinking:

Option 1: Build a new spec house for cash. We own two lots already that could be built on, and I have a construction background (licensed builder, grew up in a GC family). I think I could build something for under 200k and sell it for 275k. Only problem is that there isn't a lot of new construction happening in our area yet so it's a bit more of a risk than I'm used to. 

Option 2: Flip 1-2 houses/year with cash. Actually, one of the three properties that I hope to sell was a flip that we rented for a year to help with capital gains. We should see a 45k net gain on that flip, though finding more like it could be a challenge.

Option 3: Explore new construction on a multifamily building. Obviously we would have to borrow a lot more than we'd have. The new construction would be easy to manage (little maintenance) and I should be able to build a lot of equity into the project if I acted as the GC.

Option 4: Setting aside 50-75k for capital improvements in the properties that I'm keeping, then refinancing one or more if I need to raise cash for one of the above strategies.

I should mention that I prefer to use cash, or at least minimal leverage. I grew up seeing the fallout from the mortgage meltdown :) That said, I do have two lines of credit that could be used to make something happen. 

What would you do? Any other ideas I should explore?