How do I buy more property if I spent all on my 6 units

Question

Hey everyone so me and my 2 partners formed an LLC and recently bought 6 units that bring in a good cash flow of $2600 monthly - We put in mostly all our cash without damaging our normal lives :-) .Its going to be a bumpy learning experience but we are up for it. Now my question is going down to road to acquire more units HOW SHOULD WE DO IT?.. LTV on what we have and then buy more with that cash?- but this will mean that we will have a mortgage on the LTV on the properties and defeating the purpose- right? we will not FLAT out own the 6 units anymore. Finance the other properties we find and have an actual mortgage on them? Just keep saving those $2600 monthly until we build enough to buy more? ( slow process) Private money ?.. yes but the thought of " pitching " our investment goals to anyone seems daunting.. plus we don't know people that have 20-30k cash off the bat If anyone can give us advice that will be great!! BTW - We are 3 United States Navy Chiefs just trying to secure our future :-)

Account Closed · Answer

I would finance the properties and use the money to put down payments for more and more. I’d rather have 75-80% LTV on 30 homes then 0% LTV on your 6. At first when you said 2,600 a month on 6 units I was like wow grand slam, however when you paid cash for it then it isn’t so impressive. Each business model is different of course but talk with the chiefs and figure out some long term planned.

Mark Trebor · Answer

How much equity do you have in the 6 unit property, or how much money could you pull out if you refinanced it out?If you want to grow fast its all about managing your leverage, if you are truly cash flowing $2600/mnth the money should pile up pretty quickly. When I and my two partners started out we bought 3 houses pretty quickly. And then had to slow down we buy about 1 to 2 houses every year we now have 19 houses and cash flow $8000/mnth. But when you divide $8000 by 3 its really not that much money, its a nice second income but we're not quitting our W-2 jobs anytime soon. Fire away with your questions sounds like we have similar paths.

Grant Rothenburger · Answer

@Juan Avalos You almost have to get the equity out if/when possible. Or get used to pitching investment goals to people and meet new people that do have 20-30k to invest.I suppose you could do seller financing too.

Marc Winter · Answer

@Juan AvaloWhy not ask seller to finance your next deal? There are TONS of properties that are either free and clear (like yours!) or with very high equity. Explain the benefits of the seller holding the mortgage/note on the property. This is very different that 'pitching' for private money from a third-party investor.Take a deep breath and hit the books, podcasts, seminars and meetups. Get that education about alternative ways to finance, then use that information to make deals that work for the seller and you!Good luck!

Joel Fine · Answer

If you were to pull cash out of these properties you now own free and clear, and then reinvest it, what kind of return could you get?You could probably do a cash out refi at around 5% interest. If you can reinvest that money at 10% (or more) then that sounds like a win to me.Then it comes down to your risk tolerance. By leveraging you increase your risk. Are you willing to take that extra risk to increase your reward? Only you can answer that.P.S. Thank you for your service.

Steve Vaughan · Answer

I'd leave the commercial free and clear if possible.I looked into putting financing for cash out on a couple of mine. 50% LTV, 60 tops. But they woukd rate/term refi up to 70%.Either way it's costly. Appraisal alone will be $1500+. Then 5 yr call/expire, 5 yr rate adjusts, 20 yr term and as a bonus you get to start reporting your financials to them every year., individually. Hey Jimbo, you turn your taxes in yet? What about your PFS? All of you will be reporting. Equity strip houses if you want to, but commercial stuff sucks to tap.

Juan Avalos · Answer

@Mark Trebor Hey Mark yea looks like we are on the boat, now sure the amount we have on equity - I would assume a lot since they are all paid for free and clear. 19 houses that's awesome! We hope to get that point soon :-)

Paul Choi · Answer

Yes, one option is to refi cash out the 6 unit. Yes your debt load will be higher and have less cash flow from that property, but hopefully with the new property, the cash flow in total will be more than $2600/month. If it is, then you made the right move simply put :) Or bring on a partner, capital partner who wants passive income and not be involved in the day to day management.Did you say you own the 6 unit out right? Did you calculate your cash on cash ROI %? Got to see whats the best return on your money.