Please read and evaluate our plan! All opinions welcome:)

If you have experience with renting properties please evaluate my plan and inform me of things that I may have not considered, or confirm that my plan is possible in todays market.

My plan is to purchase a few rental properties per year and keep them for the long haul. We have debts, a fixer upper home, and and a fairly high mortgage. Our plan is to purchase fixer properites below market value, use our line of credit to do to repairs. Refinance for the full value after repairs, pull the equity and use that money to pay back the heloc we used for repairs, put aside a few months of reserves for that prpoerty, and us the rest to pay down our debts first, fix our home second, and eventually pay down our mortgage on our own home, to decrease our debt to income ratio while the tenant is paying down the mortgage on the rental. And we plan to keep doing that until we are out of debt. Then all rental we purchase after that will keep there equity and any extra money we make will go toward paying down the mortages on the rentals until, they are paid off or so low that we recieve a decent return. What do yo think? Smart? Risky?

Also, intially when we get the first mortage to purchase the property what type of mortgage should we get? Fixed rate, interest only?

All opinions are welcome.

have you considered rehabbing and selling a few of the properties to pay off some of your debts, fix your home, and build up a cash reserve?

depending on the market you are in, if you are going to buy multiple properties below market, there may be some immediate money for you to use to accelerate the rate at which you can obtain properties.

again, for the mortgage, this also depends on the market you are in. if you are in a high appreciation/high demand market, an IO loan wouldn’t be a bad idea to help with cash flow, as you would expect to make your equity gains more in appreciation than in mortgage reduction. on the flip side, if you’re in a market like i’m in (Houston) where appreciation is always pretty slow and steady, an IO loan would be pretty useless over the long term (but I guess could be useful if you are going to refi soon.)

i am fairly a noob, but i think the two biggest factors in strategy are how much of a discount to market rent or market sales price you can buy for, how much the market appreciates, and what your timeline is for return…

i’m sure you’ll get some good responses. i look forward to what some of the more seasoned property managers and landlords and real estate barons have to say… :wink:

 I'm pretty new also, started in 2006.  The problem with keeping properties for the long haul is that if there is appreciation, then you start to get dead equity.  On non owner occupied properties, the banks seldom loan more than 90% loan to value.  Often times, you can come up with seller carrybacks on a new purchase that will let you go 95% loan to value.
 I try to maintain a strategy of maximum leverage and (this is important) capital preservation.  If I have to deal with an expensive eviction or repair, I need ready money.
 Here's a simple example of my strategy:

$100,000 property purchased with 5% down and a seller carry back of 15% on a 5 year due and payable (interest only) note. I can do a situation like this for $5000 down and I will need $3500 in reserves to get qualified for a ordinary ratio loan. When the property appreciates 20%, get a 1031 exchange. I will lose $6000 at the sale in commissions, but I more than doubled my money with the 20% appreciation. Now I can buy $200,000 of property (repeat).
This strategy relies on appreciation and leverage. If your market (or your deal) does not lend itself to appreciation, then this strategy would not be right for you.
If your market has no appreciation, a buy and hold for the long term strategy may be the answer, but you need positive cash flow on those deals (any Rich Dad reference can explain how to do that).
Good luck!

Househunter your plan seems to be ok its actually doing it that can be time consuming and hard. I too intend to hold rental properties as I think its the best way to build long term wealth with passive income. You should do some flips here and there to build up some fast capital or just wholesale some properties for a quick fee. I too intend to do this. Good luck with your investing! Just make sure you buy right!


The problem with your plan is that it is extremely vague. It is not much different that saying that you plan to buy properties and make money. This sounds fine but is not specific enough to be useful.

What you really need is a SPECIFIC plan with numbers that are realistic for your market. In business, everything depends on the numbers. How far will you buy below market? Assuming you could actually borrow 100% of the market value after repair, would the properties cash flow? In the vast majority of areas, having a loan for market value on a property will guarantee that it will have negative cash flow. How many properties do you intend to buy each year? How much debt do you need to pay off? Do you have a job with income that will justify a bank loaning you money for additional rentals?

I don’t think that your plan is good or bad, I don’t think that you have a plan yet.

I would recommend starting with specific goals and a specific time frame. Then, work backwards to determine a realistic plan that will achieve your goals.