Reply to What a self made multiple millionaire would do in your shoes to increase your net worth.

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[quote=Anonymous][quote=Anonymous]OK-I'll bite. Any advice is appreciated.

Me: 40 YO, work PT make $45,000
DH 44 YO-$600,000
 
1 rental property worth $640,000, owe 460,000 ( in the process of a refi to get into the black)

about 100K in stock market

saving for 3 kids college education

I am thinking about buying some real estate in this area, but don't know what?  Multi-family?

Any advice is appreciated!
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OP here.  There is not a ton of information (ie current house value and mortgage balance- with $640K you should frankly have more money or didn't tell me about it).

That said, let me give you one piece of a major advice.   You have a bad rental property.  I would never buy a rental property that doesn't cashflow, under any circumstance.  Only people far wealthier than me can afford to gamble by betting on increased value.  I rely on cashflow.  So long as I make money every month and pay down my mortgage I never have to sell and even if the property decreases sharply in value it doesn't affect me.

You need to pick a rate of return that is acceptable for you in rental real estate.  When I first started that figure for me was 8% cash on cash return, net of all expenses, preferably with a fixed mortgage.  The following is the rough formula I use to assess a property.  Take the gross monthly expected rent and multiply time 85%.  This affords me 5% for repairs, 5% for management fee and 5% for vacancy factor.  You have to make 8% cash on cash return on 85% of the gross income after PITI (principal, interest, taxes and insurance).  When I first started I always did my own management (and did until I had about a dozen properties).  As a result of managing them myself my true vacancy rate was less than 1%.  But, still you shouldn't buy something unless it works at 85% (if you have a property manager that charges more than 5%, you need to lower the 85% number accordingly).

And you should never keep a rental property that doesn't make sense to purchase today (absent a very very strong reason to do so).  In other words, you have $180K of equity in the current property.  If you cannot reach your target return you should sell it and buy a rental property that will give you your target return with the money (even considering transaction costs).  I am speculating that this property was a previous primary residence, which is why the cashflow is poor.  If so it was a great home, but what you buy for rental should not be the same as what you buy to live in.

Incidentally I use 8% as my target cash on cash return, because I figure a decent stock market average will do the same and it wouldn't be worth the headache of managing a property without a return similar to what I can get sitting on my butt.

A final word of advice on real estate.  I would take the money you get from selling this and buy something else now.  30 year fixed rates are very good today and you will have a massive inflation hedge which should make you a ton of money in the coming few years from appreciation.  Single or multi family is irrelevant so long as you get your desired rate of return.  It takes some looking at, but I am certain you can find 8% today.  It took me years of looking at property, but I won't buy anything today that doesn't net me at least 20% cash on cash.

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