Owning Rental properties with multiple mortgages.

[Marc Appel]

I am going to get right to it. Here is my scenario. Let me know how this adds up or any advice you may have. I am sure someone in the community can tear this apart or let me know if this makes any sense. Thanks for your input!

The set up: Say I have 50K a year to put toward buying homes and 100K to start with. After that every 100k you buy another home. 

Year 1: I start out with 100K and buy home one. All the calculators I have done putting 100k down on a 250K home with $1,500 in rent yields about 6K a year in "after tax cash flow."

After year one, taking into account you have 50K at the end of the year plus the 6K you made on the rental property you should have 56K in the bank

Year 2: The end of year 2 you should get another 50K + 6K from the rental + 56K roll over for a total in the bank of 112K. 

Now that you have 100K in the bank at the start of year 3 you would buy another property with a carry over of 12K. I made a chart below to try and make some sense of this. Basically every 100K you get is another property you buy. I added the "Carry Over"+"After Tax Cash Flow"+"Additional Revenue" each year. Every year that was over 100K I would buy another home. Later years are over 200K so I would buy two homes. I stopped at year 26 with 264K carry over. 

Years	Carry over	# of Properties	After Tax Cash Flow	Additional Revenue
1	$56,000	1	$6,000	$50,000
2	$12,000	1	$6,000	$50,000
3	$74,000	2	$12,000	$50,000
4	$36,000	2	$12,000	$50,000
5	$4,000	3	$18,000	$50,000
6	$78,000	4	$24,000	$50,000
7	$58,000	5	$30,000	$50,000
8	$44,000	6	$36,000	$50,000
9	$30,000	6	$36,000	$50,000
10	$22,000	7	$42,000	$50,000
11	$20,000	8	$48,000	$50,000
12	$24,000	9	$54,000	$50,000
13	$28,000	9	$54,000	$50,000
14	$38,000	10	$60,000	$50,000
15	$54,000	11	$66,000	$50,000
16	$76,000	12	$72,000	$50,000
17	$4,000	13	$78,000	$50,000
18	$44,000	15	$90,000	$50,000
19	$90,000	16	$96,000	$50,000
20	$42,000	17	$102,000	$50,000
21	$6,000	19	$114,000	$50,000
22	$82,000	21	$126,000	$50,000
23	$64,000	22	$132,000	$50,000
24	$58,000	24	$144,000	$50,000
25	$264,000	26	$156,000	$50,000

[Dan King]

Hello Marc,

I did something similar and stopped with 5 mortgages once the market here in Portland rose so high it no longer penciled for SFH's. But the 5 houses I did purchase all cash flow well. With rates so low I recommend you buy with the least amount down (20%) so you leverage with cheap money and do not pay PMI (private mortgage insurance). Shop hard for each loan as it is very competitive. As long as each purchase cash flows you are making a great long term investment. Remember too that landlording is a serious issue and you must manage your business like a business. Join your local Landlord group and start attending ALL the classes. Remember too that other than cash flow the depreciation expense creates a huge tax savings each year on the cash flow. Good luck!