Small & Mighty Real Estate Investing

[Paul Novak]

BP Team,

I am looking for perspective and advice.  I have been following BP on YouTube for a few years and have been investing in real estate for the last 3 years.  Over that time we have acquired 4 properties, 6 doors.  Those properties are currently cash flowing $3,815 per month but if they were paid off they would generate $6785.58 per month.  My ultimate goal is to generate $11K per month cashflow and retire.  I have decided that I don't want to build a real estate empire but rather generate that cashflow from as few properties as possible.  What has worked for me is duplexes and single family homes.  I like this strategy and plan to continue.  As you can see by the attached photo I am tracking current cash flow as well as what my cash flow would be if my properties were fully paid off.  My goal is to shift from buying to paying off my properties as soon as the paid off property bar hits $11k per month. 

I live in Sheboygan Falls, WI.  The average rental home price I am looking at is between $175K and $250K for a 3 bedroom house that requires minimal work in a nice neighborhood.  Those houses could rent anywhere from $1,600 per month to $2,000 per month.  One of my buy box requirements is the house needs to cashflow at least $500 per month or I am not buying it.  With rising prices and interest rates I have been able to overcome that requirement by putting more money down.  The last house I purchased was $227,500 and we put down $85K.  My wife and I both have jobs that pay over 6 figures and our monthly living expenses are only around $8K.  We invest the rest in our business and reinvest all the profits from the business back into the business.  We are able to save about $100K per year so putting down $85K is possible for us with our current situation.  Now for the question to the group:

 - I would like to be able to retire as soon as possible even though I know we are 5-10 years away from that.  If I keep doing the same strategy, putting more money down upfront, I will generate more cashflow now but am delaying how quickly I can purchase houses.  I always viewed it as "who cares how much money I put down", I plan to pay them all of before I retire as part of my ultimate strategy anyways.  All I am doing is paying more on the front end and that saves me how much I need to pay on the backend.  It's also less total interest paid because I am borrowing less total money.  This also protects my downside risk because I could very easily lower my rents if I had to in a market downturn and compete vs. being forced to sell because of losing money.  This also gives me solid staying power when maintenance costs arise.  Should I keep doing this strategy?  Below is my other option.

- Now that we are generating $3,815 per month cashflow from my current portfolio do I just continue to buy more properties putting the minimum 20% down?  Doing this would put my new properties making next to nothing, running some rough numbers I may make $100 or $150 per month on new properties with mortgages that are around $1,500 per month.  I would use the cashflow from my current properties to protect us if we had vacancy or repairs that needed to be paid for.  Doing this would allow me to cut my down payments in half.  Or said differently purchase twice the amount of houses I have been buying.  I truly think I only need 4 more houses to hit my goal and then shift from buying to paying them off.

I am not sure if I am thinking about this the right way and I am sure there are things I am not thinking about but below are my thoughts:

Pros

 - I can purchase the houses I need to hit my goal faster

 - With getting homes fasters the depreciation, tax benefits, amortization, appreciation, rent increases all start sooner

 - Home prices on average should be lower now then if I buy in 4-5 years

 - I can take better advantage of leverage

Cons

 - I have more risk until I pay the properties off

 - Less upfront cashflow

 - Longer timeframe to acquire the properties to reach my goal

If anyone has any opinions or advice I'd love to hear it.