Seeking Advice on Strategies for Growing Portfolio from here

[Mike Liu]

Hi everyone,

I'm amateur and passive in real estate game and am looking for some guidance on how to best leverage my current assets to grow my portfolio. 

I work in the tech industry in NYC and currently own two rental properties in Columbia, SC. These properties are valued at a combined $430k and are both mortgage-free. They're managed by a property manager and bring in about $3k per month in cash flow after fees.

With a household income of around $600k (pre-tax) and $100k available for investment, I'm aiming to find investment strategies that prioritize cash flow over property appreciation. And I want to see if I can use some leveraged strategy here.

I'm particularly interested in whether now might be a good time to explore short-term rentals or if I should consider using a bridge loan against my properties for something like a BRRRR strategy, minus the rehab. But yeah, open to all suggestions.

I would greatly appreciate any advice or insights you might have. What strategies would you suggest for someone looking to scale up in my situation?

Thanks in advance for your help!

[Michael Smythe]

@Mike Liu there's always a tradeoff between risk & reward.

If you want higher cashflow, you'll need to get into riskier investments.

STRs are riskier than LTR due to: saturation, changing local government regulations, more intense time required, etc..

Regarding LTR higher cashflow:

If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

So, when investing in areas they don’t really know, investors should research the different property Class submarkets.

Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+, zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680, some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620, many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with zero or negative relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

PM us if you’d like to discuss this logical approach in greater detail!