Young investor - did i take on to much? Best next step?

Question

Hi all,

I am a 23 yr old investor in NC. I currently own 3 properties.

The first of my properties performs well. It is a 4 bed 4 bath, rented out to individuals, so it acts as a multi-family in a sense. It cash flows about $1000/ month. But, I have about 100k in equity in it and am wondering, should I sell and put capital in my pocket?

The other 2 properties are giving me issues. The second property may have potential, but after buying it a year ago, I was eager to get a renter, which resulted in me accepting someone who was good at first but then began to fall behind. While she trying her best to catch up on rent, and is very responsive, it makes me wonder what the next best steps are once I receive the remaining rent money from her. Should I sell or is the issue a bad renter (Greensboro, NC).

The 3rd property was purchased in October and I have yet to find a renter. It is an older house but could be nice for a young family or lower-income retiree. I thought that the rental amount would be more than what it's turning out to be, so my profit margins are going to be a bit lower than i thought. The house is in Winston-Salem, which is a new market for me. It's about 2 hours from me in Raleigh.

As I start the new year, I want to buckle down and take the best steps toward my long-term goal of passive income to replace my current w2 as a sales rep. I just want to make sure that I am tapping into all resources available so that I can make the most informed decisions.

There may be some important information I am leaving out for someone to give sufficient advice,  so please feel free to ask to clarify anything. However, my main question is, should I consider selling these houses and take the capital I have in the first house to then start fresh with a more secure foundation, or should I continue to iron out the problems in hopes of getting each property to cashflow?

Thanks for any advice and happy new year.

Alecia Loveless · Answer

@Matthew Murray If at all possible I’d recommend holding all three. I’m not sure if the question was so much about selling unit 1 or about refinancing it to take out some equity. I’d keep it how it is so you can utilize some of the $1000 to help offset the losses you may be having with units 2&3 right now.

I think considering a PM for 2&3 might be a good idea. It shouldn’t take up too much of your cash flow and can definitely help figure out why Unit 3 isn’t rented yet.

Likely your problem with Unit 2 is just the bad tenant.

I bought a building with great potential in April and have brought it up to where it needs to be but there is one inherited tenant that has run hot and cold about 3 times a month since then and it has put a lot of strain on me and how I otherwise view this great property. A bad tenant of an ongoing issue with a tenant or a property can really wear you down and affect how you view an otherwise great property.

I think NC is one of the fastest growing, hottest markets in the country right now and in the next 3-5 years you will be very pleased with these properties.  You have already done the hardest part which was buying them.

If you can get Unit 3 rented for a couple of years then perhaps when it goes vacant again you will have some money to do a little rehab to it and then can command a higher rent. I have no idea of the area but that’s my thought.

Best of luck! You’ve got this!

Stephen Tassy · Answer

Hey Matthew, Raleigh local here as well! I agree with a lot of the other post-ers: your problems aren't bad problems, but I'm glad you're getting some time to reassess your goals a bit as you're thinking about selling.

Personally, I would try to keep what properties I can, but if you do sell I would definitely study the next market you jump into and have good resources there if it's long distance.

Congrats on the progress by the way, keep up the good work! Feel free to reach out.

Jayme Currie · Answer

@Matthew Murray I don't see any reason to sell any of these properties (assuming that real estate is still something you're interested in). Property #2 sounds like a classic case of placing an under qualified tenant. It is always tough to keep a property vacant waiting on the right tenant, but 1-2 months of vacancy will shake out to be much cheaper and less stressful in the long run (speaking from experience). How many beds at property #3? How is the quality of your listing (photos, description, listing location, etc.)? Happy to review it and give some pointers!

Avery Heilbron · Answer

@Matthew Murray I'd definitely hold the 1st one as it's helping you towards your goals. Property 2 & 3 possibly up for debate. If you sell can you find something that helps you quit your W2? I feel like househacking in your local market could also help you get to where you want to be more quickly with less cash and lower your housing expenses.

Happy to chat further if you want to send me a PM. Ultimately there is no correct answer, but if your goal is leaving your W2 I'd evaluate how all 3 properties do or not do that for you

Evan C. · Answer

Hi Matthew, reading through your post my main impression is that you have some good problems, so to speak. You have three properties (presumably in addition to living somewhere yourself). Cash flowing $1000/month on your 4 bed is great. You have two others that are not as productive but I can't tell from your post whether this is about the property itself or something about the management, as you and Bjorn discuss. You seem to be self managing and your question is about whether to sell. I can't tell you whether to sell based on this, but I can walk through how I would think about it.

The 4 bed: I understand the frustration of wanting to access that capital but my instinct is not to sell a strong performer. Maybe that's just my inclination, I know others could make an argument for trading up through a 1031 exchange. That is an option, it could turn out well, but here for me personally a bird in the hand is worth two in the bush. This is a strongly cash flowing property, though I imagine it takes a good deal of management time and energy. A 1031 exchange entails costs and time limits that will create additional work for you that may not fit with also working your main job. I would probably hold this and review whether there were ways to make management smoother and easier.

The 2nd property: You live in Raleigh and this is in Greensboro. It is up to you but here I would consider a property manager. They are invaluable when issues beyond collecting rent crop up and they know exactly what the law does and does not permit. If you want to continue self-managing it will take some effort but you need to be clear and predictable with the tenant and never deviate from the lease. Whatever the lease says about rent due dates and late fees, follow it. When she's late, give her notice, even if she pays before anything happens. Beyond that, I don't know where the property is or what it's like so it's hard to say if there are other issues, but clearly getting a tenant paying must be first.

The 3rd property: This is not renting over the last couple of (winter) months. Obviously dropping your asking rent is one option. Without knowing your financial position in the property or its condition it's hard to know what to recommend. You allude to the condition of the house being old, so perhaps there are reasonable ways to improve that condition and present a better product. Here again I would recommend a PM. A PM can advise you on market rents, increase showings, and help with deciding what improvements to make. I have three homes in northern Winston-Salem, in areas that are neither fancy nor difficult, just in that wide suburban sprawl where it's neighborhoods but everyone's on septic. They are 2 and 3 bedrooms and two of them rent for $1300-$1400 while the other, my original, rents for about $1050.

Again, for me as a newer investor I intend to hold and that's my recommendation, all else being equal. That's because with three properties you have started to build momentum, meaning cash flow and appreciation as well as management experience, and I would be reluctant to start anew by selling and trying to buy better properties unless I had unimpeachable reasons to think the property was going to be a net cost. Down the road when you have more, perhaps it's reasonable to prune the least performing property and shoot for something better.  As far as accessing capital, two of my properties are on mortgages just above 6%. When/if those rates drop, I'll look into refinancing to access the capital. But until then I just have to wait and perhaps you do too. Unless I can find a line of credit on a rental property or someone willing to lend generously, which I have not so far.

Also, there is a Triad Real Estate Association (www.TriadREIA.org). I've never been able to attend meetings because I'm not even in the U.S. currently, but you might be able to make it out there.

Nicole Masters · Answer

Congrats on taking action at such a young age! That's very admirable.

My two cents would be to keep what properties you can, the 2nd house sounds like an issue of a bad renter and not a bad house itself. This lesson feels hard right now because you're actively in it, but you will be super happy with yourself once you're able to turn the tenant over to a better one, and you did the hard work of pushing through a tough learning lesson. I've had bad tenants in our house, and it felt like the end of the world giving them a notice to leave, but once they were out of my life I felt 100x stronger and lighter!

I can't speak on the 3rd house because I don't know the market. Are there other investors, realtors*, or property managers you can chat with that are local to that area and see what their read on the place is?

* Be careful of asking realtor's opinions though as they could encourage you to sell it just to get the listing... (speaking as a realtor that would NOT do this, but has come across plenty that would)

Again, congrats on your success and I can't wait to see what other great things you accomplish! :)

Nicole Masters · Answer

Best of luck to you! You got this! :)

Young investor - did i take on to much? Best next step?

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