Ok! I got started but now what after 5 years in?

Question

I currently have 2 very nice 3 bed 1300 sq ft houses that I paid full retail mortgage for of $110,000 each 5 years ago. My idea was to buy and hold the 2 properties by paying extra on principal on one and the very minimal on the other. Once 1 property was paid off I planed to make double payments on the other.

House (A) I currently owe about $61,000 with a 2.5% fixed interest rate with a 5 year balloon note I just refinanced into.

House (B) I currently owe $102,000 at 5.0% fixed interest rate at 30 years.

I own 5 acres of land(C) free and clear in Beebe Arkansas that I am currently living on that's tied up in House(A) worth about $25,000. (it's in the country, out side the city limit)

I own 1.5 acres of commercial land(D) in Little Rock, Arkansas (1 hour away) free and clear and it's worth about $22,000 (it's in the city) that I am currently renting the land to a business for $150 a month where they sell portable buildings. I sold this property in the past on payments for $300 down and $300 a month, but ended up taking the land back because the tenant would go 30 to 60 days without payments.  The current renter is payment $150 a month, I took this low of offer just because I don't feel like mowing it.  My current renter wants to buy the property at $150-$200 a month.  I am not sure how I feel about this.

I have about $800 - $1200 extra income per month after paying all the bills and assuming that I don't have any move outs or get fired from my day job :)

Currently I am taking all my extra money and paying about $1000 a month in principal only on House (A).

Should I stay the course and keep paying $1000 a month when I can on the principal on House (A) for another 5 years ? Or Do I have options that I don't see ?

Thanks in advance.

James Wise · Answer

2.5% is some pretty cheap money. I wouldn't be in a huge rush to pay it down.

Bill Gulley · Answer

I'd like, I think, I might, I could......

Without a definitive plan, there is no goal. If there is no goal there is no target to shoot at. No target, then you're just shooting making noise hoping you hit something interesting and profitable.

There are thousand + combinations, brain storming can be fun, conversation, but without a target to meet, it's speculation.

Figure where you want to be in ten years then twenty years, be realistic, then work backwards as to what can be done that takes you to your goal :)

Douglas Skipworth · Answer

@David Eaton,

Man, I'm sorry about those tough breaks you caught along the way.

What's that they say, "Experience is what you get, when you don't get what you want!"?!

Yes, I think most residential real estate investors plan to have their houses paid off eventually.  However, I think a lot investors try to time the payoff to meet their future cash flow needs.

For example, if you do not need the excess cash today you can plow it back into other properties.  That's what I have personally done.

I still have a W2 that supports my family and me and that allows me to finance properties and use the rents to pay down the mortgages.  My goal is to have the houses paid for before the W2 runs out so I will have true financial independence (living without working).  I would love to have all my properties paid for sooner rather than later, but I have found that when the rubber meets the road I would rather use excess cash flow now to buy more houses as opposed to paying down extra principal.  That's just my personal choice because it fits better with my long-term plan.

You are definitely on the right track (especially by being on BiggerPockets asking questions).

Hope some of that helps a bit.

David E. · Answer

@Kevin Harrison = I will check into that.  Thanks.

@Andrew Banta -  Thanks. I might have thought about that once or twice.  The only reason I am keeping the land in Little Rock is that it makes more cash flow than my 2 houses.  Right now I have a tentant who is paying rent mostly on time. I think I will give the tentant the oppunity to buy the propery but for cash only, maybe I can find some ways for him to buy it easily. Hum.. I will give it some thought.

@Bill Gulley - Your right.  I do have a plan but I wanted to see what other people thought and how they would handle the situtation just incase I was making a mistake or still on path.  Sorta like an Audit on my self.  Who knows something might have been suggested that I never knew. Sorry I am just new and want to learn. :)  If I can learn from mistakes from others then I am better off for it.. Kinda why I am here. :)  But still you give great advice.

@John Powell -  I currently live in a trailer that's paid off just out side of the city limits of Beebe(Land(C)).  I have 2 Houses in Beebe near Twin Lake Appartments.

John Powell · Answer

if your houses are in beebe as well I think it is a good location for the future. Once 167 gets 3 lane All the way through Cabot more people from the base and Littlerock will commute further to places like beebe.

John Powell · Answer

I know you said you have land in bebee and Littlerock but where are your houses? And is there a primary residence that you did not mention. For houses I would stay close to home while you are doing the land losing your self and working a full time job. Im in the same boat you are I've got four properties one being my primary residence the first I bought at retail but the others I bought at a deep discount. My goal is to pay the two smaller ones off within 3 years. The bigger ones are on 15 year loans so they are paying off quickly. I'm more conservative on borrowing money and keep a rule for my self that I will not borrow more than my w2 job can cover if I had no tenants. So the first 5-7 years will be slow and I'm ok with that. Look to the future for your motivation. Sound like in 4-5 years you will have 3 paid for properties the ball will really start rolling then.

Andrew Banta · Answer

Just a few thoughts:

If you can get even money on house B I would consider selling it and removing the headache.

Can you put up storage units on your Little Rock property or is that market tapped out? Maybe a few larger units for businesses instead of small units.

If you're not excited/happy with the Little Rock property and House B, you could get rid of both and throw the profits at House A. Once House A is paid for you can use your knew knowledge to make the next deal a winner.

Andrew

Kevin Harrison · Answer

Another thought would be that since your one loan is at such a high interest rate and you don't like dealing with Chase anyway, you could re-finance it with another lender at a lower rate while we are still at historical low interest rates. this would free up some more money every month in cashflow, help you to stop dealing with a lender you don't like, and will save you quite a bit on interest in the long run.

Another thing to consider would be to sell the house you have paid down quite a bit on and possibly use that money to buy one of these 65K houses that will bring you just as much in income, and you would almost own that free and clear. Possibly a 1031 exchange? im not sure on all the rules for that though.

Robert Norvell · Answer

Id suggest saving up your excess cash flow for 6 months or so and get a backup fund, that way you arent as worried about theoretical months without renters. Then save up, maybe sell that plot of land and get another house free and clear. Then you can consider selling the house you owe the most on freeing you up to buy the lower priced ones you covet. If you dont like the cards you have, rearrange the deck!

Joshua Springer · Answer

If your tax lien was a federal lien you can get it removed, otherwise it's state/county dependent.

Ok! I got started but now what after 5 years in?

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