Bought my first Multi! Now what?

[Nick Burkhardt]

BP Community, we did it! My fiancé and I just closed on our first 3-unit multi in Southern Maine and are so excited to finally be off the sidelines, out of my parents basement, and in the game!

The property is currently running at -$750/mo. with us occupying one of the 1-bed units (2-bed/1-bed/1-bed). We took the unit in the worst condition and will make improvements over the next 2-3 years while we save for the next one. Like most millennial investors we have student loan debt. Our current plan is to pay off our largest loan so we add +$500/mo. to our disposable income, which will take about 10 months. We will be able to put away close to $30,000 over the next 24 months. So in total 34 months to be ready to look again. We have a window of about 40 months from now before we want to have our first child, so I need to maximize our 2 incomes and make a significant move.

34 mo. Prop#2 Plan

I am thinking about going Single-Fam with an in-laws apartment 5% down around $230K (+$5K closing/fees = $16,500) which would leave me with 10-13K for improvements (most properties in my market req. a day 1 reno. budget). That would free up Prop#1 to make its projected +$600/mo. Basically we'd stay at the same overall disposable, but own two props (appreciation/paydown etc.), and live in a single family home.

Debt Reduction Plan

The other option is to spend 38 months and throw ALL disposable income at our student loans, to maximize our disposable income. Only problem there is we run out of time to utilize both incomes to save for the next prop. We'd have to wait for the 6 year (20% of 30-year fixed) to Refi or HELC and use that capital to go get another multi or said single fam.

My question is this; how can I improve my plan? What advice could you give to help me get there quicker? Thanks so much!!

[Tammy Richards]

Wow - how old are you? Wish I had your planning skills when I had student loans...

So, here's my "slow down" advice, which isn't what you've asked for, but I'm a crotchety middle-aged lady with experience both as a live-in landlord in Portland, and now as mutli-unit owner who hires out the property management.

My advice is to not get there quicker, but spend the next year learning.  See how this first property goes. You'll learn about the unanticipated expenses, the joys (?) of landlording, dealing with surprise repairs, and finding good contractors (especially in Portland area, can be tough to find the ones who will do small jobs). 

The fact that the property is running -750 currently seems to be a pretty narrow margin of potential profit when you move out -- though I obviously don't know how you've calculated expenses, and don't know how much you can increase rent with improvements.  Have you factored in property management when you leave? It can take a lot more time wen you don't live in the building to manage the property.  Trust me - it can be as much work as a part-time job.

All kinds of things can happen over the next few years. Planning is great, but over-planning can shut down the flexibility you might need as you learn more about your building managing property, your skills in dealing with people, subcontracting, and finances, and learn what you and your partner like to do and what you hate. This will all inform your next steps.  

Who knows - you may want to sell property #1 and use profits toward a higher end, or another type of income property in the end.  Or you may really like the building and not mind living with your tenants and live for free. This is all stuff you'll learn.

As far as paying down your debt, I think paying off your largest/highest rate loan makes sense. You may want to accumulate cash so that you can be more flexible with plans. You can put the cash towards your next property, and/or unanticipated expenses with your current property, and/or changes in the economic climate.  If you accumulate cash and decide against purchasing another property, or accumulate enough equity in your current one to draw out funds so you don't need the cash, you can always use it to pay off your debt - if that seems to be the right thing to do.

Enjoy the ride!