Would like to hear your opntion about my small portfolio!

Question

Hi all, Newbie here and not even sure if this is the correct place to post so please forgive me if not.

I would love to hear what you have to say about my tiny portfolio. I suspect that I know what I did wrong but would love to hear it from the pros and hopefully take notes and grow. Thanks!

All properties are paid for so no mortgage  is included in the number below plus all expenses are fixed monthly  expenses NOT including vacancy, realtor fees and major expenses. (All have recently updated - 2 years -  major appliances, AC units, Heaters, etc)

Only Tax, Insurance, HOA fees, water are included below.

Current market value estimates are based on Chase home value est and recent comps from realtors/redfine/ recent sales in the same complex.

All  3 apts are well maintained with great tenants and have been worked on  to the T so unless something really crazy happens I do not anticipate  major expenses in the next say 3 to 5 years.

Where it says full reno it includes shower and kitchen and new floors and everything.

Monthly breakdowns;

• Brooklyn NYC - 400sqft Studio in Zip 11206

Purchase price 2013 - $170k (plus $20k Full reno  Includes new inwall ac + new Lochinvar tank-less gas water heater install)

Current market value est;  around $300k  (2 mins walk to subway and 10 minutes from Williamsburg)

Rental income: $1600

Expenses: $295  (25 year tax abatement and very low hoa)

2. Roseville MI Zip 48066

2bd 1ba 770 sqft with small porch and 2 parking spaces

Purchase Price - $34k -2015 (plus $5k in reno Includes brand new appliances + new hot water tank)

Current market value est; $50k

Rental income: $750

Expenses: $350

3. Houston TX Zip 77058

2bd 2ba 1008 sqft with small porch and 2 parking spaces

Purchase Price - $65k 2017 (plus $25k in full reno Includes  brand new appliances + brand new split ac system)

Current market value est; $90K- $110K

Rental income: $1100

Expenses: $708 (Includes Hurricane Insurance)

Thank you all in advance.

Kerry Baird · Answer

Welcome to the site, and well done on your first deals. Why do you have properties in those locations?

Opinions are like noses, so you’ll get all kinds.  As to mine: I’m wondering what your overall goal is?  If you don’t know where you are going, any path will take you there, as the saying goes.

Where are you going?  More deals? Bigger deals?  You are here, so I am hoping you want to grow.  And if you do, you need a plan.

I like diversity of markets, and have invested in several States. One location where I was buying had escalating property taxes, which reduced my cash flow.  So I recently sold, because they no longer fit my plan.  Do you have a plan to buy more in any of the three markets, where you can utilize the same property manager?  Or to sell, because they don’t make sense any longer.

Think about your criteria and your overall strategy, and formulate a plan. As it is, you just own a few houses and are not really investing. Would your properties cash flow with financing in place?  How do you get the next one?

For example: I have a plan to buy 12 3 bed/2 bath in B- neighborhoods, at a discount from the retail price. I can pay more with owner financing, and must pay less for conventional financing.  I like brick houses in growing-population markets.  Potential properties must cash flow at least $250 a month.  When my current properties reach 60% equity, I plan to refinance and pull cash out, and use the proceeds to buy the next property.  I plan on selling on installment from the time I am 70, creating a different stream of income for my future years.

I personally create what I call my “Avatar” house, which really are a set of numbers at which I have a deal that makes sense.  I have so much money for down payment, I can pay this price at this interest rate. I look up taxes and insurance.  And can pay this price at *that* interest rate.  I keep the numbers in front of me when I am shopping for houses, and I know one that is a deal when I see it.

I’m still a “small time” investor, I suppose.  I’m raising kids and not interested in growin any more.  You might be there, too.  Nonetheless, I challenge you to think about a plan for acquisition, for improvement, and for dispossession.  Think about your age, your stage in life, and your income and tax situation.  Then think about where you want to be in 10 years, 20 years.

Post back!  I do look forward to reading your plan and celebrating your success in the future.  All the best~

Eli Ettinger · Answer

@Tchaka Owen - Thank you for the reply.

Below is the breakdown of my monthly expenses for this unit:

Landlord insurance $177 HOA $325 Hurricane (Flood) insurance 45 Property Tax $140Water $15

Plus this complex has 2 pools. This might makes the HOA a bit higher.

My landlord insurance went up $65 after the last hurricane.

I suspect that shopping for  a cheaper insurance will make things a bit better, however not sure if its worth it, I feel "safe" with a big brand name insurance that I currently have.

Other then that the property is located in the

Clear Creek Independent School District -

an independent school zone with super excellent ratings which I believe increases the tax bill.

As for sale price -  I know for sure that a similar renovated unit has been sold in the complex for $120 just a couple of weeks ago.

But yes, I hear you. could have done better.

Thanks again for taking the time!

Any further insight will be appreciated!

Thomas S. · Answer

I would sell the Brooklyn property, too expensive to be a worth while investment as a income property. Your dead equity is sucking the value out of the income. Money is too valuable to simply leave it sitting around doing nothing. Rent is only 1/2 what it needs to be to pull equity. Definatly sell unless you are a speculator.

Roseville is a good income property, Huston not so good. I would pull as much equity as possible out of Huston and invest to maximise returns if you are not prepared to sell.

I also believe you need to centralize your investments and move away from SFHs. Your equity is at too much risk with SFHs and would be better protected investing in multi units. Management cost would be lower if you centralize and step up to multi unit investing.

Nathan Gesner · Answer

Your first home appears to be cash flowing very well. The second two are marginal, possibly even bad.

Even though you own the homes outright, Roseville and Houston are both making less than $400 a month and that's before setting aside money for vacancy, repairs, capex, etc. I would get rid of both these properties immediately.

Like others have said, we can't really help you with your goals unless you tell us what those goals are.

Rich Tirado · Answer

@Eli Ettinger: Is the flood insurance paid by the HOA? If not there is a cheaper off market alternative The Flood Insurance Agency (TFIA) from Florida. Insurance is insurance, they all giver you a hard time if there is ever a claim made.

David Steinbok · Answer

Hi. Good job on your first 3 purchases.  My thoughts, why do you have 3 houses in 3 states. I would focus on 1 area and build your team of contractors, brokers, agents and PM  and become an area expert as they say. Once you have 5 or 6 properties then go and explore another state.  Second question is why are your houses paid for? I would put a 80% ltv mortgage on every one of my properties (assuming they still cashflow with a buffer) to recover my Reno money and to give me money to put down payment on more houses.  The first few years should be your acquisition years. Where you are buying, renovating and refinancing to buy more. Once you have a few houses, (it's a different number for everyone) then you switch to the paying down the mortgage phase. So that by the time you are ready to retire and sit on a beach or play golf all day, the houses are paid for and you can live off the rental income.

Tchaka Owen · Answer

@Eli Ettinger - Like Kerry said, you'll get all sorts of opinions. For starters, you're buying and that's a good thing. Do you have a strategy on what you want to accomplish? A roadmap will help you towards your success. Two comments:

1. I'm not fond of your Houston purchase because you didn't gain much value after spending over $25k. IMO, if $25k+ might only have it at $90k ARV, I wouldn't have spent more than $45k on it. And how do you owe $708/mo? That wrecks your cash flow.

2. If Brooklyn is worth $300k, seriously consider taking a loan on the home. If you took $150k out, you'd have most of your money back (for more investing) and the rent would more than cover it....and you get the write off too.

Good luck!

Tchaka Owen · Answer

@Eli Ettinger - thanks for the Houston breakdown. If a similar sold for $120k, that's much different than $90k...makes your deal more palatable. Your monthly is much too high at $700+ for a $120k property. As others have mentioned, you may be paying too much for insurance. HOA fee almost always includes insurance; for clarification it's all insurance outside of the walls of your unit. You are responsible for an HO-6 policy (often referred to as "walls-in"). That should run you $60-80/month. To me, you're paying around $150/mo more than you should be.

If a unit recently sold for $120k, it might be worth it to sell and move the small gains elsewhere.

Would like to hear your opntion about my small portfolio!

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