Debt paydown / cash flow or both?

[Chris Youssi]

So... market is clearly shifted towards a sellers market but that doesn't mean landlords cannot take advantage with current holdings. My thoughts have shifted as I age toward retirement so here are some of my previous and current strategies. Looking forward to learning from others and their strategies.

2-3 years ago:

Always been in the " Both " category as we typically would buy undervalued props - force equity by rehabbing / renting. Our average SFR would give us $300 /month + cash flow after all expenses. All expenses meaning the usual taxes , insurance . also including any repairs ( in 2020 we averaged $46/ month / door for repairs ) which may seem low but keep in mind when we rehabbed we replaced - repaired all major components if they were more than 5-10 years old depending on the component. All this to say we also ALWAYS had 15 years or lower fully amortized loans . Some were 10 , others 8, 7 etc... 80% of our doors are in B , others C+ locations .

Fast forward to our current market conditions and stepping back to March 2021 when we changed our strategies.

At that time ( March 2021 ) we had 24/25 SFR now sitting on 20 and holding firm as we took some absurd gains off the table . Our average retail price point at this time is $135k+ I started to recognize the rapidly escalating rent prices and also being 62 wanted to paydown some of our rentals so that when I turned 64 i would own 20 SFR free and clear bringing in a net of $20,000 / month. Rent prices - our rents have skyrocketed like most markets and we have taken advantage eg... one of our rentals moved out in July 2021 was paying $1095 - we re rented her unit in 5 days for $1400 . Another example we were getting $1095 - $1145 to similar products we re rented all ( 3/4 units ) within a few days at $1350. I'm certain there are countless other similar stories on this website. Our total numbers of doors sits between 65-70 at any given time . Keep in mind we are only focused on paying off 20 SFR not all 65-70 doors. However, we will use all our cash flow to accomplish this task. In March we started paying down an extra $24,000 / month toward one of our homes . At that time this was the total amount of cash flow for ALL of our rentals not just the SFR which is why the numbers are much higher. fast forward to October and we now are paying an extra $29,000 / month toward our debt. We currently have 5/ 20 homes paid off and own free an clear. We are right on target to achieve our objective in 22 months as we pay off more homes our cash flow increases with no debt on that door. We then take the extra cash flow and apply it toward the debt and it continues to snowball as we repeat / repeat. / repeat. This strategy along with the rapidly increasing rents are only accelerating our process.

Final option. - stay the course . use the rental increase to increase your monthly cash flow and continue down the same path / strategy you have set for yourself. 

Our situation is that we do not need the cash flow so we can afford this strategy. Not everyone shares this position . However, what are you doing with your cash flow? making it work for you / spending it or saving for another opportunity? No right or wrong answers, just my strategy that has and will continue to work well in our market. I welcome comments and look forward to other posts.

Best wishes moving forward.