@Joe Splitrock @Brittany Baker
I’ll share my story because I think it offers some perspective on an unconventional path.
2016 I bought a primary residence with my brother. We had $15k between us to our name at the time so I bought a $295k patio home with 5% down (with concessions toward closing costs) and drained our accounts. We lived there for 2 years splitting the mortgage (which was about 20% of our incomes each bc of the split). We saved money for 2 years as fast as we could which amounted to about $30k. We decided to jump head first into rentals. Before we had a full plan we put our house on the market for rent that we were living in. When we found a renter we moved our stuff into a storage facility and moved ourselves into an Airbnb. After 3 months in the Airbnb we were under contract on our second place which was a $245k condo with 10% down. Once again we were back at zero savings. The first house barely broke even because of the low down payment but it was fairly new so low capex/maint required. After 2 more years of saving we had about $30k but I was starting to feel the pressure of having no safety net.
I took a “disaster distribution” from my 401k under COVID and skipped the tax penalty entirely. This game me about $30k in a liquid safety net.
We bought house #3 in July 2020 with that $30k we had saved between us over the course of those 2 years and my 401k cash in reserves. This was new construction, again to avoid costly capex/maint while we were cash poor. We saved for another year and had about $15k.
April 2021 we bought a condo for $245k with 5% down with that $15k we’d saved. Still we only had about $30k in reserves. We then refinanced property #1 to pull about $50k in equity which we used to pay off all our other debts and banked about $10k bringing our reserves to $40k with a portfolio now worth about $1.6M because of the appreciation we’ve experienced in Phx.
July 2021 we put 3 of our properties into forbearance. Our renters experienced some payment issues but are getting back on track. We will likely take the year of forbearance to fill our reserves coffers, save personally, and defer the missed payments to the end of our loans.
After that year is up and we are able to again borrow conventionally our reserves should be approx $100k with a portfolio valued at $1.6M to $1.7M.
We are collectively at less than 80% LTV across the 4 properties because of the appreciation. We are cash flowing $200 min after capex on each property.
Our plan for the next year is to 1031 the first 3 properties which have about $550k in equity between them into about $2.2M worth of properties. This will take our portfolio to about $2.5M with prop 4 included while we sit on $100k in cash reserves.
This is where I remind you we had $15k to our names BETWEEN us 5 years ago. This REI game is a beast. Pay attention to the political and tax loopholes. Put them in your bag and lean on them early and often.
Side note…every house we own has an HOA handling much of the maintenance. There is little to no yard for each. The newish builds were KEY to us because they were predictable on the cash outlay to get started. We only truly own 1 roof. In 5 years we've had one giant expense of replacing 1 AC unit. The rest has been appliances and minor stuff. Suffice it to say, there are ways to minimize your cash outlay on the front end when you are clawing at the walls from the bottom of a pit.
