Second Deal Thoughts

[Bryan C.]

My first REAL post, be nice and thanks in advance for any opinions!

I currently have a 3/2 that I own outright and rent for $1700 per month.  Taxes are $4k per year and Insurance/hoa/maintenance is at around $1100 per year.  This gives me cash flow of about $1275 per month.  Not bad for my first accidental landlord deal!  I started renting this house when my wife and I chose to upgrade to our current house, in 2008.

I have been putting most money into retirement accounts and stock markets and vowed to not pull it out.  I am now looking heavily at stopping my contributions to those (aside from making sure I get my 401k match maxed) and focusing on Real Estate with the goal of replacing my salary at some point.

Here's where my thoughts are at the moment: Take out a loan for second property with minimum down, 20% max.  Take a loan on the equity in my first rental to finance rehab costs.  I am really interested in value-add investing, not just buy and hold turn-key.  It's just in my nature to take current things and make them much better or more profitable.  Then, rent second property for new market rent value, refinance to consolidate and remove the liability from my first house, and add both rent incomes to pay down loan.  I would also continue to pay more on top with my salary to accelerate my equity in my Real Estate holdings.

Sounds simple, right?  Well, here's my dilemma.  I really like the additional cash flow by not having a mortgage as well as the ZERO stress factor by not owing anyone for anything.  It will be stepping out of my comfort zone to have a mortgage on a property.  So, my plan is to do the get rich slow scheme and play more conservatively.  I am thinking to set a system and plan for myself to buy property, add value through rehab, rent, and pay down mortgage to 50% of value before purchasing next property. Rinse and repeat.  Is that a terrible idea?  Should I be more open to leveraging more debt?  Anyone else start out this way and become more "ok" with being more aggressive?

[Steve Vaughan]

Hi @Bryan C. and congrats on having a paid for rental!  That's awesome.

You are intelligent to look at your comfort zone and understanding the role debt will play on your personal peace factor being rocked.  In the end it's a questions you have to answer for yourself.  The low long-term rates certainly do make leverage attractive, doesn't it?

Buying right with smart debt levels at these low rates I believe will accelerate your passive income stream and the growth of your balance sheet.  Smart is the key.  50% may be smart to you.  To most here it's 90%.   Do what's right FOR YOU.

Here on BP most folks are pro-debt. I have moved away from it over the years. Started out go-go by any means necessary with leverage and have become more comfortable not chasing ROI at the expense of my serenity meter. So I am the opposite of the insight you were looking for. Sorry! Best wishes as you figure this out for yourself!