I have 70k, what now???

Question

Ok guys here’s the scoop. My wife inherited a piece of commercial property about a year ago. It is raw land and I currently have it listed, it is worth right at $170,000 based off my realtor and it’s listed for that. I already own 1 rental property that cash flows $300 a month and should be paid off by June of 2015. It will then cash flow $850. I know a lot of you don’t believe in paying off rentals, but I want at least one paid off so that if another goes unrented in the future I have money to help me with it. Just my preference.

My wife and I wanted to grow our rental portfolio so we got a little creative with the raw commercial land. We went down to our local bank and asked for a loan on the land. After giving the banker everything she asked for she called us the next day and said we were easily approved, we asked for $70,000.

My wife and I have come up with a couple of different scenarios but would like your thoughts and guidance. The loan is for 10 years at 6% payment of $777 a month.

My thoughts was to pull 20k from the 70k and use it as down payments on 3 more rentals until I own 3 more which means I would only have 10k left to play with. Each would cash flow for $300 a month and Id have 10k to use in case of an emergency.

I also considered just paying cash for another 70k home but then Id have all my marbles in that one home….

Not sure which way to go next but I do know were in good position right now, I think... The reason we took the loan out on the land is because I figured I could make something happen with the money rather than just looking at the land that is not helping me at all. Now I can maneuver a little bit with the cash.

So lets recap…

I have one rental that cash flows for $300 a month, it will be paid off in June of 2015 then it will cash flow for $850 a month.

I am approved for a 70k loan at 6% payments of 777 a month for 10 years. The money is on its way, approximately 30-45 days…

What would be your next move?

Elizabeth Colegrove · Answer

@Chance Cooper

Since we are young in our mid to upper 20's we are levaging as much as we can. So if that was our meonu, I would pull the money out of the land, invest it in rentals and use the income from the rentals to pay everything off. So now your non-income producing land pays for itself! Since I self-manage it would only be sweat equity!

Chance Cooper · Answer

@Elizabeth  Colegrove yes that is exactly what I think I am going to do. I have a really good stable job and do not need cash flow off my rental properties. I am trying to build my retirement. I will be taking every penny off my rentals and reinvesting it into more or current rentals.

Elizabeth Colegrove · Answer

Do you need the cash flow now? Do you have a steady job? Without knowing your exact numbers and life situation. Since you have one paid off rental. Have you thought about keeping the land? refinancing it to 75% of it's value and than reinvesting that money into new rentLs with 20% down.than using the cash flow to pay the rentals and land off! This would put you Ina great long term position . Just thoughts!

Chance Cooper · Answer

@Rocky V. I don't want to sell the land just yet for a huge decrease. That land is in a prime location and ten years from now I think I could do something major with it. I just can't sell out just yet…My wife want do that either.

@Elizabeth  Colegrove that is my exact plan as of now. I want make much money on the rentals immediately actually Ill be paying down that 70k loan. But once that loan is paid off thats when the fun begins. Ill begin making a lot more money and growing a lot faster. The 70k is just an immediate way for me to start growing my portfolio instead of sitting back and saving up 20k of my own money.

@David Moore yes you are correct. I will us 20k, 3 times and have 10k as reserves. Along with the $850 that is coming in off my first rental that is already paid off. Ill do this and never have to touch my personal income from my job.

David Moore · Answer

@Chance Cooper

I just want to say, congrats on $300.00 cash flow per rental. Nicely done.  I assume based on your working you would use $20,000 per rental for three rentals, using $60,000.00, and keeping $10,000.00 in reserve.  My personal approach is to  look for properties where my monthly rent is as near to 2% of the purchase price as possible.  If you are getting $300.00 cash flow per month on a house where you are getting 1% per month of the purchase price, then that is not the best.  But it sounds like, based on your description, you are getting them at really good prices.

I understand the desire to get one paid off.  I've got one paid off, and I actually walked the grass just like Dave Ramsey said...he says it feels better to walk the grass of a paid off house.  But now, I'm content putting 25% down, instead.  That 25% makes me a smarter shopper, and I like that big up front equity stake.

Elizabeth Colegrove · Answer

Crazy question, does the land have long term value? As a young buy and hold investor who loves leverage I would reinvest in as many rentals as possible using the land money. Than I would have the rentals pay off the land AND their mortgages. While the cash flow won't be as high you will be building multiple generating cash flows with no diwnpayments needs from your own pocket!

Rocky V. · Answer

Why pull the cash out of the raw land if it is currently on the market?  Do you not expect it to sell quickly?  I'm sure the $70K loan is costing you money so I would drop the price of the land in order for it to sell quickly then leverage that money to purchase additional rentals with 20% down.

James Wise · Answer

If you can qualify for 3 more resi mortgages I would go that route.

Jeremy Tillotson · Answer

@Chance Cooper you could leverage the 70k to do a flip and put the profit into a rental unit. You are on a great path. Best of luck.

I have 70k, what now???

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