1st Deal Down, Now What?

Question

Hello BP Family!

So I recently purchased my first multifamily property. Its a triplex that I'm currently house hacking. Me and my husband were able to get in with no money down thru our VA loan and we already got the other two units rented out.

The house wasn't in great shape when we moved in but after a few repairs and some cleaning our tenants are settled and we're trying to right our financial ship. I'm interested in buying another property soon, before our year occupancy limit is up (next June). Since we can't rely on our VA benefit again until then, I was exploring creative financing.

My husband is a bit more hesitant on moving forward so soon. After the repairs and all the legal work (we had to evict two tenants that we inherited when we first got the property) our personal money isn't looking too hot. He wants to just wait until our year is up in this property and just focus on paying down debt and stashing for savings. He understands that thru creative financing we won't have to use our own money but the risks still bother him.

What should we do? Do we cool our jets and get our personal money ducks in a row? Or focus on getting another deal to help speed up the process and lighten our load? How long did you wait after your first deal to get another?

Thank you in advance!

Will Chamberlin · Answer

As Tom Petty sang; the waiting is that hardest part. I am in the same boat having just closed on a property this week. The real estate game can be very profitable but there are times when you just need to wait it out and manage your finances. In the meantime, maybe check out some FI/RE blogs like Mr Money Mustache for ideas on how to decrease spending which will expedite getting to that next deal. As I let the coffers refill and get the new units squared away I am also doing some reading on minimalism and lifestyle design to help plan my exit from the W-2 world in the next 5 years or so.

John Leavelle · Answer

@Porsche Thompson

Good plan.  You should work on getting high interest debt eliminated.  That is what we did before really jumping into Real Estate Investing.  Credit cards are now paid in full monthly.   Unless it is a deferred interest purchase.  Our long term goal is similar to your's. Build enough monthly passive income to retire from W-2 job.  Being eager is understandable.

Have you developed a plan on how you want to proceed?  Type of properties and price ranges?  Finance options?  Exit strategies?  If you have not you need to.  During your research and education start finding strategies that will work for you.

Nice cash flow.  Are you deducting anything for maintenance/repairs, CapEx, or Property Management?  If not you should be now and will need to plan for them in the future when you move out.

You can still keep looking.   If you find a great deal you can try finding creative financing to get the deal done.  Seller finance, Private Lender, Partnership, or any combination.  Have you looked at the BRRRR (Buy, Rehab, Rent, Refinance, and Repeat) strategy?  If you haven't look it up on this website.  Keep the drive and you'll be fine.  :)

Porsche Thompson · Answer

Excellent idea Will! Education and reading is always a plus and I should explore more ways to make this waiting period productive. I'm going to check out that blog and pick up a few books on the recommended reading list.

Porsche Thompson · Answer

Hi John,

1. Our long term goal is buy and hold. I'm interested in flipping some as well (to put toward holding properties). My goal for now is to generate about 10,000 a month from the properties. I'm not sure when is a realistic time frame for that so I'm just being eager to pounce on what might come along.

2. I guess my debt tolerance is med. His is def low. It does get frustrating, seeing all the money we pay toward CC debt that could be better spent but I also want to make sure we're using our time wisely. For a while, my thinking was "The more properties we get, the faster we can pay off debt." Silly I know but it kept me hungry and motivated.

3. My current property is cash flowing right now. We're getting 472.00 after the note is paid. Once we move out next year it will bump up to 947.00. We do plan on using our tax return to throw at our CC debt. I just feel really bummed out that I have to sit on the sideline until next June until I can "play ball" again.

Taking care of home base is important, I just don't think our situation has to be "perfect" to start engaging in deals again. I guess I'm having a hard time drawing the line between being too anxious to get another one under my belt and being too conservative that I justify on letting go good deals.

Porsche Thompson · Answer

Thanks for your input Will. You're right about being short for repairs. That is a bind I don't want to be stuck in. Just to clarify, I was talking about credit card debt. I understand the beauty of leverage now and will def try to balance between supplying my safety net and having enough cash to pursue the next deal.

John Leavelle · Answer

Howdy @Porsche Thompson

From a fellow Vet I would like to thank you for your service (and/or your husband).

Any recommendation would need to be based on you answering a few questions.

1.  What is your long term goals - Buy and Hold (Passive Income) properties?  How may units or how much per month?

2.  How much debt tolerance do you have?  Low, Medium, High?  Sounds like your husband may not have much tolerance.  It is important to keep the peace in the family/partnership.  So you need to work out what is acceptable.

3.  Will your current property Cash Flow when fully Rented?

As @Will Chamberlin you need to build CapEx reserves to cover the current property.  Did you include an amount per month in your analysis?  As a suggestion you might use any money you receive from your upcoming tax return to build your reserves quicker (or of course pay down personal debt).

As far as how soon I purchased my next property.  I purchased my first 3 within 6 months of each other.  2 at one time.  But, They were all distressed properties and I used Private Lender money (a friend) for all.

Will Chamberlin · Answer

Hi @Porsche Thompson! I probably waited 6 or 8 months after my first to get another. The biggest thing is to make sure that your finances can handle an unexpected expense like a furnace or roof on the existing rental. It won't matter how many houses you have if the whole thing will crumble due to not being able to afford repairs. I would lean more towards your husband's approach and make sure you have some savings. If the property is cash-flowing (however you account for your own unit) then I personally wouldn't pay down the debt faster than scheduled since right now as that takes away from your savings rate and next deal (potentially). Since this is your primary residence the higher interest each year would probably help with your taxes as well so paying down principal might be more of an emotional rather than a financial decision. Hope this helps, keep at it.

1st Deal Down, Now What?

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