Best exit strategy ?

Question

I’m wanting to build a rental portfolio. I own a free and clear property in a D neighborhood. It’s turnkey. Should I sell because of the neighborhood even though the area is up and coming? I can get 850/mo. It’s pretty much a new construction. I paid $2500 for a fire damaged property. I put 65k of my own capital in, but it’s only worth 81k. What’s the best exit strategy in this scenario? 2br/1ba 980sq single family.

I also have a 4br/2ba in a D neighborhood. Purchase price was 30k. Arv is 95k. Repair costs are 40kI put 6k down, paid 5k to the wholesaler. I bought this property through seller finance. The interest rate is 3.5%. There’s a 24k note.

I know i made some mistakes here. I’m new, but if I’m trying to build a portfolio with multi families what direction should I go from here? I’m open to lease option on these as well. Even wholesale...

Shaun Robinson · Answer

@Lumi Ispas I understand. I somehow missed “newly built” in your comment. Thanks again very helpful. I think I wan to keep my properties and build out from there. Everything’s brand new in one (no cap x for a while). I can follow those steps the same, right?

Lumi Ispas · Answer

@Shaun Robinson, if you want to build a portfolio, why are you asking for the best existing strategy? What is your true goal? Are you trying to get into a different neighborhood, you want more cash flow, what is your real goal?

Btw, tt seems to me you did quite well with your first two properties.

Whitney Hutten · Answer

@Shaun Robinson I think part of the issue here is you bought "cheap" properties which required you to pay cash for them because the bank would not lend on them ($60-$70K is about the minimum loan amount).  Can you refinance out of these and take that cash and invest in your MF strategy? I would do a portfolio loan covering both of them. The big question is...do you want to keep them?  If yes, get your money out.  If not, sell them. And move on!  I don't think you can really go wrong here (aside from the one being a class D which by nature may have higher turn cost and not hold value).

Lumi Ispas · Answer

@Shaun Robinson, Absolutely you can keep the properties you have. I took into consideration that you did not want to self-manage these particular properties and thought you'll need cash to buy other properties. If you can't get your cash out through refinancing from the existing properties and don't have extra cash for new ones, then you'll have to wait until you save for another downpayment or to buy another less expensive home.

If you do have the cash, or find a way to refinance the above properties then you clearly can keep them and either self-manage or hire a property manager.

Shaun Robinson · Answer

@Evan Polaski I’ve had one for a year, but it’s been marked ready since September. I recently took it off the market to pursue other exits. I overpriced it, over rehabbed it, so it sat there. I’m glad it went that way because now I can do what I want. It’s free and clear. It’s just a low end property, however my position seems desirable. I want to hold properties, but multi family in particular.

Shaun Robinson · Answer

@Lumi Ispas Thanks! Makes sense, but #3 is kind of scrambling my brain lol. Could you please expound?  I understand that banks typically do 65%-%75 LTV. How do you structure a deal where you leave 25% in?

Lumi Ispas · Answer

@Shaun Robinson, You can build a portfolio and hire a property management company if you don't want to self-manage properties. Depending on how many you have, in time you can just hire someone on salary. For now, as the two properties are too small to refi, I will sell them and buy larger properties with financing using the same methodology as you did on your first two. It's called BRRRR - Buy, Rehab, Rent, Refinance, Repeat.

The plan will be as following:

1. Buy a property that needs work and you can increase the value by 25% more than purchase + rehab cost combined.

2. Rent the property out for a top dollar.

3.Go back to the bank and refinance in such a way that you leave only the 25% newly built equity in and get out your original downpayment and remodeling money.

4. Hire a property management to manage it. You can hire the company at step 2 and have them rent the property for you too if you prefer not to be engaged in renting it out. Keep in mind you'll have to just pay the rental fees in that case.

5. Repeat the process. Go and buy another property with the same requirements as step 1 above.

Hope that makes sense.

Evan Polaski · Answer

@Shaun Robinson, a couple items I see: first, how long have you owned these assets?  If only a couple months, to refi, you will likely need to wait either 6 or 12 months for seasoning to refi at appraised value.

Regarding, hold or sell, it sounds like you have your answer that you want to build a portfolio of assets.  The only reason to sell would be if you are not wanting to own THESE assets, whether it be the risk of the area and the tenants you might be able to attract or you want to own multi's not single families.

Shaun Robinson · Answer

@Whitney Hutten Thanks! You’re right! I did buy cheap because I thought that was my only way in. I also wanted rehab experience. I had no understanding of leverage. I think I’ll keep them and refi out!

Shaun Robinson · Answer

@Lumi Ispas

Thank you for responding! I do want to build a portfolio, but I’m having trouble deciding how to go at it. I want to invest in multi family properties, but do not want to be a landlord. I invested in those properties because i thought that they were all i could afford and I wanted to get off YouTube and do something. I had no idea how to leverage that cash i used on two deals and do five. My goal is to gain cash flow and building long term wealth. I plan on doing this full time. I’m learning to wholesale now to build capital and learn acquisitions. I plan on scaling. I’m interested in developing as well. Is there a best way to leverage my position? I really jumped in head first and I want to avoid any major mistakes. I’ve been educating myself and talking to other professionals. Now I’m trying to utilize BiggerPockets more because everyone here is passionate about the same things.

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