Cincinnati, OH · Member since 2015 · 6 posts · 3 votes
Hi everyone,
I'm pretty new to real estate investing, but will be ready to make my first purchase within the next few months - provided that I find a good deal. A good deal, to me, would be a multifamily (hopefully 3 to 4 units) with cashflow of $200 per unit or better (after applying the 50% rule I've been reading about). I plan on living in a unit and renting the others, and to that end, I do have a couple initial questions to start things off:
1. For those in the Cincinnati or Northern Kentucky area, is there a general preference on renting in either area? I assume there might be, due to factors such as property taxes or landlord laws or something, but I'm unsure.
2. Doing the math, I've found that based on my current income, I should be able to pay off a property costing $50,000 within two years. Do any current investors have opinions on whether it's worth it to focus on paying off a property rapidly like this as opposed to merely taking it slow and gradually building equity? What are the long-term consequences, if any (such as early payment penalties), of doing this?
In addition, I'd very much like to connect with investors, both seasoned and new, in the Cincinnati/NKY area to broaden my knowledge as well as to make connections for potential partnership deals in the future.
I hope I get a chance to meet like-minded people soon!
Simply, bone up on the areas that you need to expand knowledge in such as, Forums, Marketplace, Learn, Network, Analyze and Resources.
Feast on the Podcasts, #askbp Podcasts, blogs and webinars
Lastly, this site thrives on interactions and as such we encourage two way exchanges and look forward to educational and thought provoking ideas relevant to REI.
Simply, bone up on the areas that you need to expand knowledge in such as, Forums, Marketplace, Learn, Network, Analyze and Resources.
Feast on the Podcasts, #askbp Podcasts, blogs and webinars
Lastly, this site thrives on interactions and as such we encourage two way exchanges and look forward to educational and thought provoking ideas relevant to REI.
Tavari, as you gain more experience you will understand and appreciate the fact that leverage can work to your advantage in real estate investing. If you can find debt at a lower rate than your return on investment, then you have what is called positive operating leverage. Over time, if you can also grow your rents higher and maintain your cost at more of a fixed level, including your financing costs, that also adds to the positive operating leverage. Use the free cash flow and or equity that you build up on your first deal to then leverage that into another deal. While it sounds nice to be able to quickly pay that property off it may take more time or personal assets to get to that point. Treat your real estate investing as a business and try to make sure that the profits payoff the related debts rarher than you having to dip into your pocket.
With respect to one side of the river or the other, the Cincinnati market is obviously much bigger and more diverse with respect to real estate investing. It also relates to where you live and how much time you want to travel back and forth to your property. Happy to connect with you as you have questions or want to grow your team.
Tavari, as you gain more experience you will understand and appreciate the fact that leverage can work to your advantage in real estate investing. If you can find debt at a lower rate than your return on investment, then you have what is called positive operating leverage. Over time, if you can also grow your rents higher and maintain your cost at more of a fixed level, including your financing costs, that also adds to the positive operating leverage. Use the free cash flow and or equity that you build up on your first deal to then leverage that into another deal. While it sounds nice to be able to quickly pay that property off it may take more time or personal assets to get to that point. Treat your real estate investing as a business and try to make sure that the profits payoff the related debts rarher than you having to dip into your pocket.
With respect to one side of the river or the other, the Cincinnati market is obviously much bigger and more diverse with respect to real estate investing. It also relates to where you live and how much time you want to travel back and forth to your property. Happy to connect with you as you have questions or want to grow your team.
Hi Ben,
Thank you for your insights!
Regarding paying off a property quickly, this is my (inexperienced) train of thought, so please feel free to correct me if I'm not thinking it all the way through: it would definitely require dipping into my own pocket, but at the same time, 1. I'd be able to save a considerable amount of interest overall, 2. the cashflow I'd be making on a fully-paid property would eventually (over several years) make up for having dipped into my pocket when I started, and 3. I'd have a considerable amount of equity to leverage for another property.
However, if I understand correctly, you're saying that it would be more beneficial to just run a positive operating leverage while making minimum payments, and then after a year or two, use the accrued equity to leverage into another deal? Even if the accrued equity would be much less than if I had paid off the property in full?
To provide context, I'm looking for a relatively inexpensive multifamily, no more than $100,000 and preferably closer to $50,000-60,000. As far as dipping into my own pocket is concerned, I can reasonably pay off $25,000 of a property per year - that is, assuming there are distinct advantages of paying off a property quickly.
And yes, I'd be very happy to connect with you and discuss this in more depth at some point. Having looked at your profile, I see you're quite busy, so what would be convenient for you as far as meeting is concerned? I work until 5pm Monday-Friday, but have no obligations beyond that.
@Tavari Keel First off, welcome to BP! Secondly, to answer your questions, it matters what your overall goal is. It looks like you have a full-time job, so is your goal to replace that job with passive income? If so, how soon? 1 year, 5 years? Or are you using Real Estate as a retirement plan? Or is your goal something else entirely? Depending on what your end goal is, paying off the property may or may not make sense.
@Tavari Keel First off, welcome to BP! Secondly, to answer your questions, it matters what your overall goal is. It looks like you have a full-time job, so is your goal to replace that job with passive income? If so, how soon? 1 year, 5 years? Or are you using Real Estate as a retirement plan? Or is your goal something else entirely? Depending on what your end goal is, paying off the property may or may not make sense.
Hi Theo!
In truth, I'm a bit too inexperienced to know how to answer your questions, but I'll give it a go.
I've read an article on BP that talk about a 7-year (give or take) plan that eventually leads to owning an apartment building with hundreds of units and generating a million dollars per year or more. I'm skeptical of how realistic that is, even at a 10-year projection. However, if I somehow do wind up getting lucky enough to make a comparable amount with investing, I'd absolutely replace my job and make real estate my retirement plan. Specifically, I'd need to generate approximately $70,000 per year before thinking about leaving my job.
So I hate to answer a question with a question, but my answer to your question seems to depend on how realistic it is to become an owner of a large apartment building (which is my end goal, based on this article). I mean, if it were as easy as the 7-year plan suggests, wouldn't everyone be doing it?
As previously mentioned, I'm more than willing to dip into my own pocket as needed in order to make such a goal a reality.
@Tavari Keel Okay I know what plan you are discussing. I have looked at the plan, and I think it is something that can be done in 7 years, if not sooner, depending on your level of risk tolerance and aggression. If your goal is to get to $70,000 the quickest and you are going to use the "7 year plan", then I would have to agree with what @Ben W. is saying regarding leverage. Since the plan has you selling the properties after a few years to upgrade, paying down the property doesn't make much sense. By the time you pay it down, it will be time to sell anyways...I can go on and on about why I personally don't think paying down the properties is a good idea and I don't wanna spend all day listing them all LOL. If you want, we can grab a coffee this week to discuss in further details! Feel free to DM me if you are interested
Leverage is likely key to obtaining that goal in 7 yrs. If you secure a property with 20% down and get a mortgage on it...you now should have enough to purchase multiple properties....then with the rent income you can add to your portfolio on a continual basis.