Buy & Hold SFR Right Now?

Question

Hey everyone,

I'm curious on your thoughts. I have an existing healthily cash-flowing rental portfolio but my current strategy is to buy SFRs in solid "B" areas in a steadily growing region. Once I rent them and refinance (5 year terms, 20 year amortization) they cash flow but just barely. In 5 years when the new loan term begins, interest rates will likely be lower and rents will likely be higher, resulting in an increase in cash flow. This future cash flow (along with equity growth) is my interest in this plan. Assuming there won't be any banking issues in getting new loans, what are the potential risks with this plan? Cash flow is hard to come by these days so hopefully some of you have been thinking about similar questions!

Taylor Dasch · Answer

I personally just want to retire so I would prefer they be amortized over as long as possible.

But this system definitely has great potential to build much greater cash flow in 5 years! I like it. The only risks would be that rents go down which I dont think will happen and even then you would still be sitting pretty well if the interest rate decreases - as long as the property is cash flowing at least a little bit today.

Patrick Rhodes · Answer

I prefer to follow the guideline of "Long term holds should be on fixed long term notes". Of coarse when possible. The properties should cashflow more on fixed 30year notes if they are cash flowing on a 20year. If mortgage paydown is the goal, I would set them all up on fixed 30 year notes and then take all of your cashflow and pay down on one single home until it was completely paid off. The start on the next, " the snowball effect". This also gives you the ability to claim that cashflow as income for securing new loans going forward or pocket it if your income is compromised elsewhere for a short time.

Best of Luck and keep killing it

Sanat Bhandari · Answer

@Elliott Kleiman To keep strong cash flows and take advantage of potentially lower rates and amortizations, you could do a rate and term refinance, instead of a cash out, so that you refinance your existing loan into a 30 year am (from 20 year am). Keep in mind that since property taxes and insurance are also going up, your cash flows would be influenced by the gradient of change in these two factors

Apart from that, another potential risk (on top of what @Taylor Dasch mentioned) (assuming a cash-out refinance per your post) would be lower equity in the deal (depending on how much you pull out) and therefore, a higher possibility of being in the red if the market were to go south

Taylor Dasch · Answer

Lmao, unfortunately I took on more than I was ready to handle at once. I’m currently in a 3/1 ARM  interest only on two of my properties. The rest are conventional.  As soon as I get my credit and some reserves in the bank I’ll most likely pay the fees and refinance in to something more stable over 30 or 40 years.

Elliott Kleiman · Answer

@Taylor Dasch

Thanks Taylor! What debt structure do you use / how long is your amortization?

Buy & Hold SFR Right Now?

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