What should I buy next with my current finances.

Question

Okay Bigger Pockets Folks

The time has come for me to make some decisions:

My situation: I live in Sf Bay Area in California. I own two Single Family Home Rentals currently. One in California and one in Texas Both are currently rented. I am currently cashflowing about 800$ a month with both properties.

I just completed a Cash Out Refi on the California property and now have 200,000$ Liquid cash, as well as additional 50000K liquid cash for reserves/emergency funds etc. The lender who did my cash out said based on my dti ratio they will lend me an additional $400,000 ( currently preapproved for this) . So max I have is $600,000, although I don't know if I want to spend all of this.

My Goals:

I want to scale fairly quickly, I am 35 years old now and I want to have sufficient amount of units/ properties by the age of 45. I just started reading the multi family millionaire and learned about the stack method etc. So I am thinking my next move will be a out of State 4plex. One thing I found interesting in the book is when he talks about not scaling fast enough because your in your comfort zone. I don't want to do this. So I'm thinking large scale( 4 plex and bigger )at least within the next 10 to 15 years.

- Have enough (take home after tax pure cash flow) from my properties to match my current w2 net income ( which roughly 7500$ to $11000 monthly)

- Not create a lifestyle where I am so immersed in my real estate investments that I cannot enjoy life. I self manage two newer properties right now that don't give me to many problems currently. So basically the less problems, the better. I would be willing to pay people to have less work and problems. Ie property management etc.

IM REALLY MAKING THIS POST BECAUSE ITS NOT EVERY DAY THAT I HAVE 200,000 CASH IN MY HANDS. I REALLY FEEL LIKE THIS NEXT DEAL OR DEALS THAT I DO WILL BE PARAMOUNT TO HOW MUCH I SCALE IN THE FORSEEABLE FUTURE.

MY QUESTION TO EVERYONE.

-WITH MY FINANCES THAT YOU HAVE SEEN ABOVE WHAT WOULD YOU DO. ?

Below is my thoughts.

Buy more SFH? I want to get bigger and create enough cashflow to replace my w2. Seems difficult in the sfh area

Buy one multifamily property or maybe even two.? Any ideas on areas where you can buy 4plexs or duplexes built post 1960 for under 300k each, I know the midwest 8), a lot of multifamily properties are old though, any areas with newer multifamily that you recommend.

Would you pay cash for one property outright or buy multiple properties and just put down the minimum 25% and buy the rest with leverage from the bank. ?

Anything else you care to add.

Theresa Harris · Answer

Find a place you can afford using part of the $200K as your down payment and borrow the rest.  Then yes get it stabilized and look for your next place using some of the remaining $200K.  Find out how much you can borrow. If you can borrow $800K, look for a good place that is perhaps $400K, used $100K for the down payment and get a mortgage for the remaining $300K.  That leaves you money for another down payment and room to borrow more.

Theresa Harris · Answer

Do not scale quickly because someone writes about it in a book.  You have to stay in your comfort zone.  It is fine to push it a bit, but don't go too quickly to meet some goal that may or may not be realistic.

You have two rentals already, so try a 4plex.  If you have $200K, why is your max $300K?  Budget is important, but so is buying a quality home (not fancy, just solid and in a good area).

You said your plan is to buy more rentals, so use that money as a down payment.

David Ginn · Answer

Hi @Patrick Thomas DickinsonOkay, so Patrick what you did is you just pull to a 200 hundred k cash position, and you're thinking about leveraging that out for 600 hundred thousand dollars and staying in a buy and hold investment. The next thing you said is, you want to make the right decisions so that you'll do the right thing for the rest of your life. So now I'm going to give you advice that is in contrast to everyone else, hands down. Sell everything you own, liquidate it. Holdover cash position and go into lending or flipping, those are your two best options. The market is gonna correct and fall down, DO NOT buy a house right now. Do not buy multifamily, don't buy anything.  You're at the top of the market and it’s going to correct and fall, don't do it. Sell everything you got, pull over cash position and start flipping properties. Buy renovate and flip, buy renovate and flip, and again buy renovate and flip, it's like reps in a workout. 1,2 or 3 houses, the quicker you flip the better you are. Because your market's going to a fall position, and in a fall position you have to buy renovate and flip it, before the market catches up to you on the downside. It's critical right now that you take your cash and put it into lending with people who are flipping. DO NOT lend to people that are buy and hold investing. That's a taboo. Lend to people that are flipping who  know what they're doing, and are very experienced, don’t lend to someone that doesn't know what they're doing. Don't go talk to a buddy or a friend, you got to find somebody who can show you their performance. Those who flipped a hundred homes,  fifty or even twenty, and could show you their performance, and their ROI. Lend if you want to be passive and keep your W2 jobs. In my system, people are making 12% or 3.75 points that is 50.75 % or points a year on a deed, If you're going to be active in the system. Or you’ll get 20% of the equity share, so you do want to lend. With  lending or flipping once, you're going to probably make 30-40% a year, if you're actively flipping and your full time.  That's my advice for you. Make it an awesome day!

Eric Fernwood · Answer

The type of property you buy is not important. What matters is selecting properties that best enable you to meet your goals. Below is the process I would follow to grow a reliable, inflation advantaged, long-term income stream.

Location Selection

Location is the most important decision you will make, not the property. As long as you buy in a good location, all but the worst mistakes will be corrected over time through rent increases and appreciation. However, if you don't invest in a good location, you can do little to turn things around. So, you have to make the right location decision.

Fortunately, there are a few indicators that make selecting a good location easier than you might imagine. The most important of them all is the rate of appreciation.

• Appreciation - The number one criteria in location selection is appreciation. Inflation is constantly eroding buying power; each year, it costs more to buy the same set of goods. If you buy in a location where prices and rents are rising faster than the inflation rate, you will be able to buy the same set of goods because you will have the additional dollars you need from increased rents. If you buy in a location where prices and rents are increasing below the inflation rate, your only option will be to decrease your standard of living over time. If you are interested, I can post an article showing why appreciation is the fastest way to grow your portfolio and cash flow.
• Population Size - Greater than 1 million. Small towns may rely too much on a single business or market segment.
• Population Growth - If people are moving into a location, many things have to be right, including jobs and the cost of doing business. I would not invest in any location where the population is stagnant or declining.
• Crime - People and companies will not move to locations perceived as dangerous. One source of cities to avoid is Neighborhood Scout's 100 most dangerous cities.
• Disaster Risk - Some parts of the country are more prone to natural disasters. The best indicator for natural disaster probability is homeowners insurance cost. I would avoid states with high insurance rates. Note, even if insurance pays for all the damage your property suffers, you still lose. When a significant disaster occurs, people and jobs move to locations where they can make money today. The location may take years to recover, or it may never recover. ValuePenguin is a good source for the relative cost of insurance by state.

Investment Team

If you needed surgery, you would not start medical school. Also, not just any doctor will do. You want a surgeon that specializes in the kind of surgery you need, not a general surgeon. The same is true with real estate investing. You want to work with an investment team that already has the skills. The place to start is with an investment Realtor. Know that even in a large metro area, there is likely only one or at most two investment Realtors. So, an investment Realtor will likely be hard to find. Below are the skills an investment Realtor provides directly and indirectly through team members. While finding an investment Realtor may take time, the cost, risk, and time savings will be worth it.

Tenant Pool

The only way to consistently make money is to keep the property occupied by what I call a good tenant. A good tenant is someone who:

• Has stable employment in a market segment that is very likely to be stable or improve over time
• Has a credit history with which you can evaluate the likelihood that they will perform
• Pays all the rent on schedule
• Takes care of the property
• Does not cause problems with neighbors
• Does not engage in illegal activities while on the property
• Stays for many years

Good tenants are the exception, not the norm. Good tenants are the result of:

• Targeting the right tenant pool
• Selecting property properties that attract your target tenant pool
• A skilled property manager

How do you determine the right tenant pool that will support your financial goals? Your investment team is your first stop. In addition, I would interview multiple property managers. I believe that the best tenant pool will be obvious once you go through the interviewing process.

Properties

Your investment team will help you to define the property characteristics that will attract your target tenant pool. They should also provide the analytics you will need to make an informed decision, not MLS sheets. MLS sheets have little value to an investor.

In Conclusion

If you follow the location > investment team > tenant pool > property path, you will be on the right track and should do well.

Patrick Thomas Dickinson · Answer

@Lydia Bar

new construction in conroe texas. I found a local investor agent. It was not a turn key provider. I prefer to shy away from turnkey. I really like to get rid of the middle man ( aka turn key provider), yes sometimes you need to help to do things, but understand that turn key providers are in it to make a profit and guess who that cost rolls back to ????? you

Patrick Thomas Dickinson · Answer

@Eric Fernwood You always have such great information and very thorough ,would you be opposed to talking over the phone one day I feel like maybe I can get more across that way and maybe some more insight. I understand most of what you said in the previous message but you seem to know a lot about real estate investing so Id love to pick your brain. I’ll keep it short and sweet I’m sure your time is precious

Patrick Thomas Dickinson · Answer

@Theresa Harris I like your advice to be more clear I have $200,000 for a down payment as well as the ability to obtain financing from my lender. A four Plex sounds like a good start ,get it stabilized work out all the kinks and then go from there once I feel comfortable

Nick Giulioni · Answer

Just me up when you're available @Patrick Thomas Dickinson

Patrick Thomas Dickinson · Answer

@Nick Giulioni Indianapolis was on my list I would love to chat more about that maybe through phone call if you wouldn’t mind just let me know and I’ll private message you

Nick Giulioni · Answer

Hi Patrick, I'm from California too. But started my real estate journey here in Indianapolis. Now, I have almost a hundred doors. Would love to share my experiences and extend help if needed if you're interested.

What should I buy next with my current finances.

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