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Updated almost 8 years ago, 01/02/2017
My Year 2016 in Review
Background: busy software engineer in SF bay area.
Strategy 2016: Cautiously buy out of state properties, accumulate cashflow for my balance sheet (to qualify bigger loans).
Started 2016:
- 6 (all out of state) rental properties.
- Holding cash/stocks for out of state investments.
Today:
- Raised rent on 3 properties.
- Added 3 more rental properties, all in Indiana
- Purchased 2 properties from whole sellers and remotely rehabbed.
- Used a new loan to purchase one higher priced and newer property (remotely rehab). After rehab it was October, I experienced the longest 3-month vacancy in my investment.
- The Athens GA property continued to be troublesome. We had a 2.5-month vacancy. Refer to my last year's review for the seller.
- Connected with some experienced sf bay area investors who own properties with 6000/mo rent income. They really changed my perspective about cashflow. What if I only own 3 or 4 of these kind of properties free and clear? Isn't that a better way of retirement than owning 50 properties out-of-state?
- One of the tenants sneaked a big dog into one property and made a lot of damages. My PM did a great job handling the eviction and repairs.
- Holding 9 properties at the end of the year.
2017 Goal:
Apparently I didn't finish my 2016 goal of purchasing 4+ more SFH. Only did 3, but I am OK with that. Since deals are harder to find, I've started looking into commercial properties.
Another goal of 2016 was to close a 3plex at the start of the year. At the end I backed out of that opportunity because of continuous delay in rehab. And I believe another BPer picked it up. I am happy with that decision looking back now.
- Slow down and accumulate cash reserve. Stick with my numbers for new purchase, especially for cash flows. Getting ready for a downturn or at least a slow down in 2018. Indy market has become very expensive compared to 2015 when I started investing there. The local bay area market is still red hot and even more unaffordable.
- Diversify investments in bay area and out-of-state.
- Explore further areas from bay area (e.g., Sacramento) for cash flow opportunities.
congrats on a solid year. As far as 50 houses that each have a small amount of cashflow vs a few higher end ones, you'll probably get 100 different answers. In your shoes, I'd prefer the 50 houses to spread out the risk. One vacancy isn't a big deal. A 2.5 month vacancy in a $6000/m house hurts more. You also have 50 houses appreciating vs only a few. I would encourage you if you haven't to own properties in different areas and not all 50 in one market; say 15 in indy, 15 in NW Indiana, 15 in Atlanta, etc. Markets will fluctuate differently so it'd make sense to spread risk out. As long term holds, I wouldn't worry too much about the potential slowdown in the next 2-3 years. That's a great time to buy.
Harry,
Sounds like some wise investors, and I'm glad they changed your perspective about cashflow. As Bob Bowling used to say "faux cashflow." My partner has a rental in Palo Alto that rents for $9,800/month. You get a totally different set of tenants in the high end market. No need to worry about them damaging your property.
I agree with owning better asset class. Less doors with higher rent and better quality tenant. I had over 30 doors here in the Bay Area, and I've been slowly selling some off in 2015 and 2016. Will sell a couple more in 2017. Slowly getting out of Class C and keeping Class B properties. Raise liquidity and get ready for the next opportunity.
Doing value-add deals locally allows you to reuse your capital. If you use your money to buy OOS properties, how do you plan on jumping on local deals when the opportunity presents itself? Would you rather buy a property with $100k build-in equity or a property that produces $500/month of cash-flow?
My goal is to take it easy in 2017. Sell off some assets and pay-off our home.
Good luck in 2017.
How do you get finance beyond 4 properties? what kind of rates?
Originally posted by @Diane G.:
How do you get finance beyond 4 properties? what kind of rates?
Fannie Mae will allow an individual up to 10 financed properties (for households comprised of a married couple: 10 for her and 10 for him, if each spouse qualifies individually). It's been that way for some time. Cash-out refinances too, if you're sitting on a bunch of equity and want to be a cash buyer.
Related, and where the misconception comes from: How Lender Overlays Kill Deals.
Interesting... I was under the (mis)impression that you need to be below a certain income level to borrow from Fannie Mae?
Hi @Harry Zhou, can I ask how you remotely rehabbed those Indiana rentals? Do you have systems in place that allow you to manage a rehab from CA?
@Account Closed hey Minh, how's it going? Sounds like you had a good 2016, but I'm curious, are you selling off properties without doing a 1031? Are you just paying the taxes and saving the cash? If so, then you're really relying on a serious market crash to occur again. Although we're in uncharted waters with the election results, there is some consensus that the incoming administartion's economic stimulus spending plan and corporate tax cuts will keep the economy going for the next couple of years. After that it is anyone's guess. i.e. the expected RE market correction we've all been talking about just got pushed out by 1-3 years. Do you agree with this prognosis?
And FYI, bobs phrase was the slightly cleverer "cash faux". Mine was turd key. They go together rather well ;)
Happy new year!
Sell, pay taxes and use the proceeds to pay down debt. Call it conservative or stupidity to deleverage, but owning certain assets free and clear sounds kind of nice to me. I hope Trump can keep the economy going for a couple more years so I can sell a couple more assets. Have to spread out the sales to reduce the tax liability.
I agree with the prognosis. The higher we go, the harder we fall so I don't mind the RE market gets pushed out a little. You and Bob are too creative coming up with new words. They sound appropriate for the scenarios though. ;)
Great post. 2016 in review. Finished 1 fix and flip project and took profits. Another fix and flip house in south Pasadena is in escrow. Helped fund 1 house rehab in marina del Rey. Helped fund another rehab in cheviot hills. Helped raise funds for these projects.
As a private investor all my money is allocated. So I'm not sure how to proceed in 2017. Since I'm mostly passive these projects will take care of themselves. Any input is welcomed. I will continue to read books & network. @Account Closed would love your input.
So ladies and gentlemen if all your funds were tapped out & want to make 2017 productive how would you proceed?
Harry Zhou best of luck to you in 2017!
@Account Closed,
To me, the best approach is a combination of buy-and-hold and 1-year MFH flips. On buy-and-hold, it's better to have a property manager IMO. On MFH flips, the 1+ year approach will allow you to qualify for long-term capital gains, which really minimize your tax liability. In addition, there's no pressure to sell if you don't get your wishing price as your tenants are paying down your mortgage and you're getting your cash flow monthly. Once you learned the MFH 1+ year flip game, you're not going back to SFH flips. The learning curve to get into MFH game is definitely harder, but it will be worth it once you're in the club. Hard money lending is a great way to get yields too. However, the taxes are a little steep.
If one is tapped out, use this opportunity to do something one loves such as learning how to play an instrument, and/or get in shape. Making money is great, but one has to take care of his/her health too. If flipping is your gig, use this opportunity to learn how to buy properties at the courthouse steps or learn a RE niche. A niche is where one makes the big dough.
Best of luck.