New property

[Atretes1]

I close on a new property on 08-06 pending inspection.

2 unit duplex for $195,000. Pretty decent price for the area. Units were remodeled within 2 years.

Already rented for $1050 each side.

Definitely upping my game with this one. I'll be at 3 properties now with 4 units total.

[bjl584]

What CAP rate are you getting on this one?

[TexasHusker]

Nice work

[james.hendrickson]

Excellent work - get as much profitable real estate as you can.

[Atretes1]

What CAP rate are you getting on this one?

10.4% not figuring in maintenance.

[riverwed070707]

Did you close?

Not sure if it was a broader scale thing or more localized for my area but we were definitely in a sellers market for a while. People were putting their houses on the market a year or two after buying them and turning profit. I'm always keeping an eye out for my next rental and I've started noticing the last 4-6 weeks that a lot of these houses are coming on the market $30-50k over what people paid less than 5 years ago but now instead of selling like hotcakes they're sitting on the market for 70+ days and going through multiple price drops.

[TexasHusker]

So an interesting case study in the GATLINBURG TENNESSEE market.

The values in this region, made up mostly of vacation homes, were decimated during the 2008-09 crash. You could easily pick up a nice cabin for $80 to $100 per square foot that would yield anywhere from $20-60K per year depending on the size.

In late 2016, a forest fire destroyed 1500+ homes in the area, all while the demand was starting to pick back up.

Fast forward to today, a very basic, lower-end vacation home that is new construction is going to be at least $180 per square foot, and if it's within a fwe minutes of Gatlinburg, it is $200 per square foot or more. If you have a great view or are on a river, add another $50 to $100 psf to that amount. If it's a luxury cabin, tack on yet another $50 psf. Why has everything doubled? UNDER SUPPLY and OVER DEMAND.

I had a cabin destroyed that was right on the Roaring Fork River in Gatlinburg. The good news is that I got $210K from the insurance, and I only owed $146K. That cabin produced around $30K per year income.The bad news is that I am having to spend roughly $210 per square foot to rebuild.

But more good news...the cabin will now likely appraise for at least $350K, BUT my mortgage will grow to $210K. So my equity will have doubled. And my income will likely grow to $50-60K per year as this is a luxury cabin with all the bells and whistles, and it's overlooking a river.

The bad news is that I've lost $45-50K in revenue while I have been rebuilding the cabin.

So it's all very interesting how the tide goes in and out...

[Atretes1]

Did you close?

Not sure if it was a broader scale thing or more localized for my area but we were definitely in a sellers market for a while. People were putting their houses on the market a year or two after buying them and turning profit. I'm always keeping an eye out for my next rental and I've started noticing the last 4-6 weeks that a lot of these houses are coming on the market $30-50k over what people paid less than 5 years ago but now instead of selling like hotcakes they're sitting on the market for 70+ days and going through multiple price drops.

Yes I did. I started buying rental properties in 2016. I have bought 1 a year locally since then. That's the fastest I can find then where the numbers work. This last one was a duplex so its technically 2. I now have 2 single family and 1 duplex. I always have said that i wish I was where I am now but back in 08 and 09. I just was not ready for rental properties then.

[riverwed070707]

Congrats! In my experience there’s a reason multi-units bring in more $$. My four plex is a cash cow compared to my SFH but my tenants definitely make me work for it. Looking forward to picking up another 2-6 units so I can justify the cost of a property manager. Happy to have some other real estate investors here such a touchy subject on this forum

[james.hendrickson]

If any of you guys have a few moments, I'd frankly love to get your thoughts on how you're thinking about cash management in your investment properties? Like, how much are you holding back in reserves? How are you productively managing the rest of the cash, etc.?

[corn18]

Congrats! In my experience there’s a reason multi-units bring in more $$. My four plex is a cash cow compared to my SFH but my tenants definitely make me work for it. Looking forward to picking up another 2-6 units so I can justify the cost of a property manager. Happy to have some other real estate investors here such a touchy subject on this forum

It's only touchy when it is deemed superior to other investments. I have enjoyed reading about how to be successful at RE investment. I also want to hear the good AND the bad. If it were that easy, everyone would be doing it.

The same thing happens on bogleheads.org and early-retirement.org. There are a couple of zealots that consistently toot their RE horn, which is fine. But then they take the irritating step of calling out the 401k/IRA crowd as inferior. No reason for that second bit. If they leave that part out, the threads usually go very well.

[disneysteve]

Happy to have some other real estate investors here such a touchy subject on this forum

It's only touchy when it is deemed superior to other investments. I have enjoyed reading about how to be successful at RE investment. I also want to hear the good AND the bad. If it were that easy, everyone would be doing it.

The same thing happens on bogleheads.org and early-retirement.org. There are a couple of zealots that consistently toot their RE horn, which is fine. But then they take the irritating step of calling out the 401k/IRA crowd as inferior. No reason for that second bit. If they leave that part out, the threads usually go very well.

corn beat me to it. I was going to post the very same thing. RE isn't a touchy subject at all. RE investing is certainly a time-honored way to make money. But IT ISN'T RIGHT FOR EVERYONE. It's "touchy" here because some people come along preaching RE as the only thing to do with your money and that everyone should be doing it and if you're investing in your 401k or Roth or stocks, bonds, and mutual funds, you're doing it wrong.

Even though I do not, and don't plan to, invest in RE, I enjoy reading all of the RE threads and learning more about that option, even if I don't ever actually participate in that avenue of investing.

[riverwed070707]

If any of you guys have a few moments, I'd frankly love to get your thoughts on how you're thinking about cash management in your investment properties? Like, how much are you holding back in reserves? How are you productively managing the rest of the cash, etc.?

Kind of tricky for me to speak on what I've done in the past because my divorce was a pretty significant setback in my plans but I can certainly speak to current situation and plan moving forward. My goal with my rental properties is to create cash flow for early retirement. I keep about $10k in reserves and the rest goes into downpayment savings for my next property, allowing me to save enough for a new property about every year to year and a half depending on the market. I'm not currently doing anything to maximize that savings between purchases. I'm also not planning to just keep acquiring properties - once I hit ~$5k/mo net (5-6 years from now) I'll stop purchasing and start investing the profit. My properties are all on 15 year mortgages so they will be paid off when I'm 41-45 which will further increase profit for investing and boost income to around $7,500/mo. I'd venture to say in a lot of real estate circles my process is a little unconventional in that many investors would rather finance on 30 year mortgages to increase cash flow and more quickly purchase additional properties - regardless of the numbers, for me, my method feels safer and aligns pretty perfectly with my retirement timeline.

To address corn and DS, I don't find it superior necessarily, I find it less intimidating and easier for me to grasp exactly how much money I'm going to be making and when. It was easier for me to set targets and know when enough is enough and I suppose one of the things that makes this plan very achievable and more appealing for me than say just throwing money into stock investments now and trying to live off dividends is that I live in a LCOL area and can snatch up decent properties for >$120k and they producing a greater return than what I could expect in the stock market. My 4-plex was purchased for $92k, put about $50k in renovations and it grosses $3,200/mo, which is well beyond what would be considered a "good" real estate investment... and largely the reason I've been dragging my feet on purchasing another because I can't find as good of a deal haha. If I lived in another area, I think my plan would be harder to execute.

In addition to my real estate investments, I work a corporate job and contribute 10% to a 401k with a 3.6% employer match so I'm not all eggs in one basket. As I approach traditional retirement age, I'll begin selling the rentals and allocate those proceeds appropriately to help compensate for the fact that I won't be likely be making any pre-tax retirement contributions after age 45.

Think I answered your question? But if not, I love talking real estate so ask away or feel free to pick apart my plan.

[corn18]

Kind of tricky for me to speak on what I've done in the past because my divorce was a pretty significant setback in my plans but I can certainly speak to current situation and plan moving forward. My goal with my rental properties is to create cash flow for early retirement. I keep about $10k in reserves and the rest goes into downpayment savings for my next property, allowing me to save enough for a new property about every year to year and a half depending on the market. I'm not currently doing anything to maximize that savings between purchases. I'm also not planning to just keep acquiring properties - once I hit ~$5k/mo net (5-6 years from now) I'll stop purchasing and start investing the profit. My properties are all on 15 year mortgages so they will be paid off when I'm 41-45 which will further increase profit for investing and boost income to around $7,500/mo. I'd venture to say in a lot of real estate circles my process is a little unconventional in that many investors would rather finance on 30 year mortgages to increase cash flow and more quickly purchase additional properties - regardless of the numbers, for me, my method feels safer and aligns pretty perfectly with my retirement timeline.

To address corn and DS, I don't find it superior necessarily, I find it less intimidating and easier for me to grasp exactly how much money I'm going to be making and when. It was easier for me to set targets and know when enough is enough and I suppose one of the things that makes this plan very achievable and more appealing for me than say just throwing money into stock investments now and trying to live off dividends is that I live in a LCOL area and can snatch up decent properties for >$120k and they producing a greater return than what I could expect in the stock market. My 4-plex was purchased for $92k, put about $50k in renovations and it grosses $3,200/mo, which is well beyond what would be considered a "good" real estate investment... and largely the reason I've been dragging my feet on purchasing another because I can't find as good of a deal haha. If I lived in another area, I think my plan would be harder to execute.

In addition to my real estate investments, I work a corporate job and contribute 10% to a 401k with a 3.6% employer match so I'm not all eggs in one basket. As I approach traditional retirement age, I'll begin selling the rentals and allocate those proceeds appropriately to help compensate for the fact that I won't be likely be making any pre-tax retirement contributions after age 45.

Think I answered your question? But if not, I love talking real estate so ask away or feel free to pick apart my plan.

Every time I read a post like this, I do a simple calculation:

$5,000 / month income * 12 months = $60,000 annual income

In order to generate that safely from my portfolio, I would need 25x that or $1.5M.

I could be wrong, but I think you did not have to put up $1.5M to buy your properties.

Then I start feeling stupid and want to buy RE.

Then I get scared and look at my retirement savings balance.

Then my analytical brain kicks in and I start thinking.

If I took the $1M I plan to save over the next 3 years and leveraged half of that in RE, I could be generating $60k (or more) of annual income on a $500k investment. Put the rest in my 60/40 portfolio and generate an additional $20k of annual income ($500k * 4% withdrawal rate). That would put me at $80k of annual income. Add that to my pension of $44k / year and the $40k I would get from my current $1M of retirement savings, and I am at $164k / year. That is FU money right there.

Or I could stay the course and live with $80k from my $2M portfolio and $44k pension. @ $124k, that's not FU money for me.

[disneysteve]

To address corn and DS, I don't find it superior necessarily, I find it less intimidating and easier for me to grasp exactly how much money I'm going to be making and when.

That certainly makes sense. There is a predictability to real estate because you know you're collecting a certain amount in rent each month and you know what your mortgage, taxes, and insurance will cost.

What keeps me away is the unknown and the hassle factor, and maybe that really isn't such a big deal, but I'm not terribly handy and don't want to be spending my free time fixing other people's problems. I have enough trouble fixing my own. I don't want phone calls from tenants telling me a sink is dripping or a toilet is clogged or the washing machine stopped working. And I don't want to deal with someone being late on the rent or the whole process of finding and screening tenants in the first place.

I'd be a great "silent" partner. If I could find a trusted friend who wanted to run the show and just needed capital for making the purchases, I could get on board with that. I actually have a couple of friends who are into real estate. I should probably talk to them sometime to see if that might be something they'd be interested in.