What to do now? $1.2-1.3M Portfolio Free and clear, 33yr old.HELP

Question

Title makes me feel like one of these damn dating apps lol

Im having a really, REALLY hard time making a decision on where to go now. I currently have a portfolio of 7 individual condos in S. FL that are producing roughly $6 to $7k per month after all expenses/reserves etc. My goal is to eventually have that number be 80k to 100k. I also realize to do this I will likely need to leverage but its a very hard thing to do when the Cash Flow is so beautiful right now and I have very low risk (No mortgage)

The way I see it is I have 2 options, Stay "Comfortable" and try and pick up a new unit every year moving forward until im 55-60 which puts me at 30-35 units (Maybe more as I scale) which is far from my goal

OR

Leverage out 7-800k and go buy $2m worth of properties which would be about 12 units near me.

I just cant make a decision and have been going over this for over a year now. I feel I need to shit or get off the pot if im going to leverage myself. Id love to here from some of you that have been in similar situations or maybe another take on it, maybe I have options Im not thinking of.

Side Note- Im a flipper/realtor with a rather unsteady income $100k-250k a year and the wife has a solid income (Owns a traveling hair salon) I hate that a lot of pressure is on her since her income is super steady and mine fluctuates so damn much.

Opinions NEEDED

Anthony Gayden · Answer

@Joe Stafford

$72,000 year cash flow / $1,300,000 equity = 5.5% return.

That is a very lackluster return in my opinion. I pull equity out of my current properties and buy more. If you have a lower risk tolerance then borrow less so that you don't feel as uncomfortable.

With your cash flow goals, it will take a very long time to reach that level without leverage.

Adam Martin · Answer

You have presented 2 solutions that essentially look like either you are staying all cash or leveraging full tilt.  Have you Considered some happy middle ground where you could have the best of both worlds.  I suggest you sit down and write out a budget for you and your wife and see how much of this current cash flow you need and leave a cushion.  From there you can look into leveraging some of your properties to grow faster while banking on the cash flow from both your non leveraged as well as the flow from your leveraged houses.

Dave Foster · Answer

@Joe Stafford, Ya gotta dig down into the actual numbers.  But I'm guessing that your performance could be improved greatly by selling and moving into a different asset class.  Just getting out of HOA is going to have a solid impact.  I like low risk strategies and you're killing it.  But maybe too much.  Given your personal situation your absolutely right you could probably save and buy a house a year for a long time.  But you could also just as easily sell these condos and 1031 (so you're deferring all the gain and depreciation recapture) and use those proceeds as down payments on some pretty fun larger/value add projects.   Given your debt situation you'd also be a really good candidate for a reverse improvement exchange where the 1031 proceeds are used for both purchase and rehab of the new property (which theoretically results in an even higher arv at the end of the process).

So that's the aggressive wealth build side of it.  The conservative cover your 6 play is to continue to save the same amount of money you would if you were going to buy a house each year.  As it comes in place it somewhere it is accessible (for emergencies, case flow shortages, construction mistakes, etc).  But somewhere where it is also bringing in a return.  It doesn't have to be a lot because you're freeing up an under performing portfolio to do the heavy work of multiplying wealth.  But that extra income that builds is your buffer of safety.  And if you've got a year or so of mortgage payments saved up earning interest as something else then you've got no worries and your net worth will build quicker than you can imagine.

You don't have to be a debt cowboy.  You've arrived.  Now it's surgical tweaking and you'll be very happy with the results.

Joe Splitrock · Answer

I really dislike condos as an asset class. The fist to lose value in a recession and last to recover. HOA can be a huge cost and a nightmare to deal with. I like owning the land underneath.

Have you considered short term rentals to increase your income on these units? Otherwise use a 1031 to upgrade to larger units. Each condo could probably fund a down payment into a bigger deal. You could get the same cash flow, but also be gaining equity in a bigger deal.

Anthony Gayden · Answer

Here are the downsides I see to that idea. Selling costs would suck thousands out of your profit. If you don't use a 1031 exchange you are subject to a ton of taxes. Finding a large non-performing building to rehab will be difficult. You would lose all of your cash flow while you are working on this project.

Brian G. · Answer

@Joe Stafford if you want to speed up growth to reach your very high cash flow goal you simply need to leverage up at some point, otherwise it’s just a pipe dream and you should change your goal. You can use moderate leverage (ie 50-60% LTV) if you want to be conservative. In addition, you should definitely consider investing in apartment buildings, otherwise at your current cash-flow rate of approx $1k/mo/property you would need to own 80-100 free/clear properties to make $80k-$100k/mo in cash-flow which would be 80-100 transactions, 80-100 properties to manage, etc. You could accomplish the same cash-flow goal by owning say 8-10 apartment buildings that each pay you $10k/mo. You could always 1031 a property into a leveraged apartment purchase and start there. My thought is to consider networking with apartment investors and invest some money with a couple experienced GPs to start so you can learn the biz before fully committing to run point on an apartment deal, etc. I would personally rather manage less assets to reach my cash-flow goals. My $.02.

Bjorn Ahlblad · Answer

@Joe Stafford Congrats on what you have put together at a relatively young age. As you are well aware people make and lose money with all kinds of properties. More doors has worked better for me for cash flow. I have duplexes I bought a few years ago before prices went up, and a 12 unit I am particularly proud of. In California we owned SFR's when we lived there that made no money on CF; but had huge gains when we finally sold them.

Perhaps start by selling the lower performing condos and move to properties with more doors, especially where you can leverage your rehab skills. All the best!

Joe Stafford · Answer

@Adam Martin this is an option. We dont need any of the cash flow to live, its all retirement/freedom fund. I reinvest everything basically. I think I may do just that... find a happy medium.

Joe Stafford · Answer

Thanks @Anthony Gayden I was thinking the same tbh. My other option could be sell everything and go heavy on a building thats non performing, rehab,rent and either resale if the profits there or just hold on to it.

What to do now? $1.2-1.3M Portfolio Free and clear, 33yr old.HELP

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