Where do I go from here?

Question

Hey everyone, I'm new to BiggerPockets. I thought I'd share my story with everyone and hopefully get some insight from all of these success stories. I'm 27 years old, living in Fairfield County, CT. I'm looking to maximize profit margin and acquire as many properties as possible. I've read-up on wholesaling, but hear it's not an easy process in this area. Here's a brief outline of my story:

At 23 years old I got hired to my current job making 70k per year. I've been employed for 4 years and with my overtime rate, it usually ends up at around 100k per year.

House #1

At 24, I used an FHA loan to purchase my first house 220k (three family) in the north end Bridgeport, CT (within a mile of the ever growing Sacred Heart University). I lived in this home for a year, moved back in with my parents and ended up renting out the entire thing. As of now, this property earns $2300 in profit per month.

House #2

At 26, I purchased a three family home in Fairfield,

CT (downtown area) for 500k with 20% down. The house filled almost immediately and currently turns a profit of $1400 per month.

House #3

At 27, I refinanced my Bridgeport house out of FHA. I applied the FHA loan to a single family property that I purchased in Fairfield, CT for 450k. Since I didn't have much time between both Fairfield purchases, I didn't have enough cash to avoid FHA. My mortgage payment on this house is $3200 per month.

Where I stand now:

2300 + 1400 - 3200 = $500 per month in profit (if rent comes in time). I feel like I've hit a wall and don't know where to go from here. My peers commend me for my "financial wisdom" and that's nice. Three properties is great. I own over 1 million in real estate. However, I want to keep expanding to the point where my day (and night, and midnight) job is secondary cash flow. I've started to look into a home equity loan for House #2, but I'm low on cash. I've also contemplated going for my real estate license.

You're all success stories. I want what you have.

Please send help!

Sincerely,

You're protege, Alex T.

Mario B. · Answer

welcome @Alex Testani Rough crowd in here. You have to unload your single family if you are truly serious about making money. That is financially crippling you. Buy something smaller or move back home. If you're making 100k plus $500 a month, how are you strapped for cash? I would start saving for a larger financial runway, an excess of $25k in case of emergencies on your rentals, after your unload your place. That should be easily attainable with your income over the course of 12 months.There are some great podcasts on the site and webinars to learn more. You should come to the next investment meeting in Fairfield at the end of the month.

Thomas S. · Answer

How are you calculating cash flow. Your numbers are too high to be realistic on the properties you describe.

Alexander Felice · Answer

I think you started pretty well, but some hangups you are certain to run into now or in the near future.you are grossly miscalculating your net profits. Most people are running a 50% expense ratioso house #1 for example4200 rent * 50% expenses = 2100 gross - 1900 mortgage = 200 profit 50% isn't exact, but it's really close. You may not feel this expense right away, this calculates vacancy, management, and long term capexAlso, you spent 450K on a non-investment house (EXPENSE), this obviously hinders your progressIf you're going to be relying on your own funds to buy these units, then yeah it's going to go slow. I would recommend learning how to raise private capital, and maybe find a cheaper area to invest, and take a really long look at your actual profit because these deals are good, but not as good as you seem to think, and that will really cripple you when you find you have an expensive month! good luck, your progress is impressive, just gotta dial it in!

David Nutakor · Answer

@Alex Testani, l think you need more education on how to invest in rental properties because the actual profits you are making on these properties are less than what you've stated. How do you pay for other expenses (maintenance, vacancy, capex, management fees, etc)? You need to include those expenses in your calculation. Also, for the fact that you didn't know the meaning of 2% rule tells me that you need to spend more time on BP to educate yourself. Good luck. David

Alex Dem · Answer

IT's a pretty good indicator of a substantial positive cash flow ( montly rent is 2 % or higher than purchase price plus renovation if need be)

Ryan E. · Answer

Alex Testani I think you are doing really well! Great job. You should start saving a significant portion of your monthly rents to go towards future expenses as has already been stated. If you are still single you could rent out a couple of rooms in your current house to help offset the mortgage expense even more. How much would that single family home rent for? Is it appreciating significantly? Would it make for a good airb&b rental? You could even AirB&B a couple of spare rooms and make some good money if you are comfortable with that. If you can get a coupe of roommates to offset more expenses you could save more money for another down payment and go buy another 3-4 family and live in one of the units until you have enough money/until you’ve lived there for a year and rinse and repeat until you’ve maxed your loans out.

Alex Testani · Answer

@Thomas_S. House #1 = $1900/month mortgage -1700 first floor -1500 second floor -1000 third floor = 4200 total rent - 1900 mortgage = 2300 profit House #2 = $2700/month mortgage -1500 first floor -1600 second floor -1000 third floor = 4100 total rent - 2700 mortgage = 1400 profit House #3 = $3200 mortgage $3700 profit - $3200 mortgage = $500 profit total

Alex Testani · Answer

Thanks man!

Alex Dem · Answer

@Alex TestaniGreater Hartford area investment properties tend to get 2% rule (especially in rentable areas like New Britain, Meriden, Bristol and parts of Hartford) and acquisition cost is much more liberal than Fairfield county.

Alex Testani · Answer

what's 2% rule?