i've got money problems

[George P.]

i purchased a house for 57k 13 months ago. put around $25k in it (labor and materials) and rented it out for $1275.

it was appraised 2 weeks ago at 125k. I am trying to get as much cash out of it as possible and found a lender that can do 70% cash out refi on a rental property. net cash out would be around 80k.

here's where the problem arises..

1. nothing under 80k these days. those cash flow very little at around $1100 rent
2. do i put it in the stock market?
3. do i pay down my other 6-7 mortgages that have ballances between 35k-122k and apr between 4-5.875%?
4. wait for the winter and hope that the prices would drop (unlikely).

[Mike H.]

How many loans do you currently have?
Are you limited to paying cash for a house?

I'm just wondering why you can't use that 80k to buy down 3 or 4 houses so they cash flow.

In your current situation, the house you have you were all in at around 82k and its renting for 1275.

But it sounds like you can't get those kinds of deals any more. Sounds like you can only get them for around 100k all in now.

Lets say you took your 80k and used it to buy 4 homes at 100k that were worth 125k - like yours is today.

That would mean you would need to:
1) Get a loan on the current house and pay about 450/month.
2) Get loans on the four houses of 80k and pay about 450/month on those as well.

But here's the upside. You would now have 5 houses that I'm guessing would be cash flowing about 425 a month or so before repairs/vacancies.

Rents: 1275x5 = 6375 per month
Payments: 450x5 = 2250 per month
Taxes and insurance (i'm guessing here):350x5 = 1750/month
Total profit before vacancies and repairs: 2375 per month

If you use the same numbers, you current have one house cash flowing about 925 per month.

And here's the other thing. With one house paid off, you're getting zero principal paydown. With 5 houses with loans, you'd be getting roughly 400/month in principal paydown.

With one house, you'll be getting roughly 2 or 3% appreciation (if you figure the historical average). But thats only 3% of 125k (or 3600/yr). If you own 5 houses, you're making 3% of 600k or (18k/yr).

Add it all up (rent income, principal paydown, appreciation) and one house with that 80k sitting in it will make you roughly:11,100 per year (before vacancies and repairs)
The 5 houses (acquired with the help of that 80k) would make you roughly: 51,300 a year (before vacancies and repairs)

There's definitely an exponential factor in real estate when you start looking at the numbers. I would take that 80k and use chunks of it to pay down additional houses so they still cash flow like the one you have today. And let the factor of time and total number of properties push your returns through the roof.

Thats my philosophy anyway. And I'm sure its not for everybody. But I'd be very hard pressed to believe they could argue with the numbers of how real estate works.