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Updated almost 10 years ago,
Noob in Tri-Cities, WA
Hey Guys-
I've been lurking on the forums for a number months and finally wanted to introduce myself and also ask for some advice! Man, there is some great content on here (working through the podcasts (what's going on Brandon? Not much haha) and blog posts) so thanks everyone for that!! I hope this isn't too long but I think we have kind of a unique situation that I should detail.
I guess to start out with our personal situation (which will be changing soon). My wife and I currently live in Seattle in a house we bought and fixed up in 2012. We are 28 with no kids yet but working on changing that =). Both of us are full time working professionals and are fortunate in that we have a bit of surplus income (Mr. Money Mustache ftw!) that I'd like to see us earn some solid returns on via real estate investing. We bought and fixed up a house in 2012 and due to sweat equity and fortunate market conditions, have some solid equity. So, while I'm new to the rental world, I do have experience in rehab (and actually like it).
Soooo, the change is that we are going to be leaving Seattle this month to move to Eastern Washington to be closer to family. The good news is that we can liquidate the equity in our house and put it to work in our new market, which is about half the price of the Seattle market. The plan is to buy a simple, primary house for us at 20% down and use the rest of the capital for rentals. My objective is to accumulate a portfolio of SFH/MFH over the next couple years, learn from these smaller deals, network in my region, and then potentially moving into more serious deals (either commercial or rentals with more doors. I've read through almost all of Ben Leybovich's articles and think something like a 10 door unit could be very interesting down the road).
Here are a couple of the strategies I'm considering for the next year or so and would love to get input on:
-Target SFH with 3/1 or 2/1 setup that are distressed or in foreclosure, rehab (either myself or contractor depending on situation), and rent out. I'd be able to buy with cash and self fund the rehab. Once the unit is rented, I'd like to finance it with a 15 year note to recoup my working capital. I've run prelim numbers and this is what I'm seeing:
Purchase Price (foreclosure, REO I think. More research needed):$75k
Rehab: $5k-$8k
Retail price: $120k-$130k Rent: $875-$950 If I leverage the house at 20% equity ($92K note), my debt service is $690 with a coverage ratio of 1.3. It doesn't quite hit the 1% rule at full retail valuation but not sure how important that is to me. At this leverage level, I would pull all my working capital out (~$83k) and potentially even boost my working capital by $9k ($92k note minus $83k invested). So my ROI is crazy good. Thoughts?
-Second strategy could be to simply work with a broker or wholesaler and jump right into MFH. If I'm able to finance with 20% down, I could potentially purchase 2-4 MFH depending on size. I haven't seen any pro formas for MFH in my area and am not sure what my area's cap rate is so this is a bit of an unknown. What would be a good way to evaluate this option? I'm guessing networking around town and trying to find a good broker? In general, it seems MFHs are more profitable and I like the risk mitigation of having multiple doors. I could also try to find a building that needs some rehab so I can get some sweat equity (I like this sort of thing if you couldn't tell, haha). The downside is that we are thrust right into land lording for multiple tenets and don't have a chance to evaluate how we like it. Also don't have the opportunity to make small mistakes to learn from.
Okay, jeez this is getting long so I'll end it here. Input would be MUCH appreciated. Thanks guys!
I've been lurking on the forums for a number months and finally wanted to introduce myself and also ask for some advice! Man, there is some great content on here (working through the podcasts (what's going on Brandon? Not much haha) and blog posts) so thanks everyone for that!! I hope this isn't too long but I think we have kind of a unique situation that I should detail.
I guess to start out with our personal situation (which will be changing soon). My wife and I currently live in Seattle in a house we bought and fixed up in 2012. We are 28 with no kids yet but working on changing that =). Both of us are full time working professionals and are fortunate in that we have a bit of surplus income (Mr. Money Mustache ftw!) that I'd like to see us earn some solid returns on via real estate investing. We bought and fixed up a house in 2012 and due to sweat equity and fortunate market conditions, have some solid equity. So, while I'm new to the rental world, I do have experience in rehab (and actually like it).
Soooo, the change is that we are going to be leaving Seattle this month to move to Eastern Washington to be closer to family. The good news is that we can liquidate the equity in our house and put it to work in our new market, which is about half the price of the Seattle market. The plan is to buy a simple, primary house for us at 20% down and use the rest of the capital for rentals. My objective is to accumulate a portfolio of SFH/MFH over the next couple years, learn from these smaller deals, network in my region, and then potentially moving into more serious deals (either commercial or rentals with more doors. I've read through almost all of Ben Leybovich's articles and think something like a 10 door unit could be very interesting down the road).
Here are a couple of the strategies I'm considering for the next year or so and would love to get input on:
-Target SFH with 3/1 or 2/1 setup that are distressed or in foreclosure, rehab (either myself or contractor depending on situation), and rent out. I'd be able to buy with cash and self fund the rehab. Once the unit is rented, I'd like to finance it with a 15 year note to recoup my working capital. I've run prelim numbers and this is what I'm seeing:
Purchase Price (foreclosure, REO I think. More research needed):$75k
Rehab: $5k-$8k
Retail price: $120k-$130k Rent: $875-$950 If I leverage the house at 20% equity ($92K note), my debt service is $690 with a coverage ratio of 1.3. It doesn't quite hit the 1% rule at full retail valuation but not sure how important that is to me. At this leverage level, I would pull all my working capital out (~$83k) and potentially even boost my working capital by $9k ($92k note minus $83k invested). So my ROI is crazy good. Thoughts?
-Second strategy could be to simply work with a broker or wholesaler and jump right into MFH. If I'm able to finance with 20% down, I could potentially purchase 2-4 MFH depending on size. I haven't seen any pro formas for MFH in my area and am not sure what my area's cap rate is so this is a bit of an unknown. What would be a good way to evaluate this option? I'm guessing networking around town and trying to find a good broker? In general, it seems MFHs are more profitable and I like the risk mitigation of having multiple doors. I could also try to find a building that needs some rehab so I can get some sweat equity (I like this sort of thing if you couldn't tell, haha). The downside is that we are thrust right into land lording for multiple tenets and don't have a chance to evaluate how we like it. Also don't have the opportunity to make small mistakes to learn from.
Okay, jeez this is getting long so I'll end it here. Input would be MUCH appreciated. Thanks guys!