What to do….Starting over.

[Matt Cecil]

Hi All!

I’ll keep the details to a minimum (unimportant) and give you the meat of my situation. I quit my job to pursue real estate and another opportunity. We just sold our house and have very little debt (only student loan) and are living with family.

- We have roughly $150k in the bank

- only student loan debt

- currently 2 sfh investment properties

Where would you start or go from here next?

I searched BP and didn’t seem to find anyone in my similar situation. I’m looking to get as much information as I can before I commit to a path. I always thought if I had the opportunity to start over I’d know what to do. Well now that I’m in that situation, I’m a little apprehensive and want to make sure my next steps are the right one.

Thanks in advance!

[Account Closed]

The big money in real estate is not single family homes. With single family homes you may get a little cashflow and the properties may appreciate a little but that is peanuts compared to multi-unit properties. I practice what I preach. 

When my son turned 19-years old three years ago, July 24th, and he just turned 22 yesterday, I purchased 5 homes for him in Las Vegas for $1.2 million and paid cash. That was a huge mistake on my part. During the past 3 years each of his properties increased in value by about $50,000 to $75,000. That is really horrible compared to what I should have done.

I'm already experienced with investing in multi-units and had I invested that same $1.2 million into apartment units in California where everyone, including myself, thought rental units were far too expensive three years ago, that $1.2 million would have appreciated by about $800,000 vs the approximately $350,000 we earned in Las Vegas.

So, we sold all 5 properties in Las Vegas and purchase a 6-unit apartment building in Hawthorne California and the building is exactly 5 miles from where we live vs. 280 miles to manage the properties in Las Vegas.

Now that we own 1 6-unit building vs. 5 single family homes the profit and calculations is a whole new ballgame. We did the calculations about 50 times and our broker did the calculations and our results were identical. Our calculations show that the 6 unit property will net is a minimum profit of $980,000 in 10 years and if everything goes the wat we project our profit will be $1.2 million, or $120,000 per year for 10 years.

So, your best route is to look into selling your homes and purchase no less than a 4-unit property because when you own properties with 4+ units the value of the property is determined by annual income multiplier times the Gross Multiplier.

The following image is an example of the profits for a 4-unit property when you increase the rents only $50 every year.  At the end of 5 years your profit is $285,000. I think the business model for every investor should be to achieve these types of profits from multi-unit properties. Maybe, investors should purchase single-family homes only when they know the homes will appreciate and they should have a business model where single-family homes are only a stepping-block to earn the money to purchase 4+ units as soon as they can.