Article on how to grow investment property and paying off one and using the funds to pay for the second
Our First Investment Property
"This was how we unintentionally became a landlord and owning our first investment property."
Prior to my now wife and I being married, she purchased a 2 bed / 1 bath condo in the East Lakeview in a large High rise. She had grown up with frugal parents who were disciplined financially, so she was able to purchase her own place in her mid-twenties.
After we got married, we needed to buy a bigger place. Without knowing what our home budget was going to be, we decided to save aggressively without trying to calculate exactly how much cash we will need after receiving the home equity.
However, when we finally found a townhouse in the Near West Side of the city of Chicago, we had enough cash to put down a deposit without having to sell the condo, so we decided to rent out the unit. This was how we unintentionally became a landlord and owned our first investment property.
Our first tenants were two young professionals who were like us, so we were lucky to understand each other and have a mutually respectful relationship. For us, having the right tenant is much more important than trying to maximize the rent price, so we usually list slightly below the market rate to attract more applications to choose from.
Our Second Investment Property
"I saw a lot of potential in this building as it sits right on Michigan Avenue and I knew that the demographic that would rent a studio in downtown would be young professionals who are always on the go, whether to work or school."
Moving forward two years in 2022, we still continued to save cash from our income every month. In June, I had an opportunity to purchase a small coffee shop in the Albany Park area. However, due to differences in our business valuation and agreement, I moved on from this proposal.
While sitting on my desk considering different options, I came across a studio in a previous building that I used to live in. I saw a lot of potential in this building as it sits right on Michigan Avenue and I knew that the demographic that would rent a studio downtown would be young professionals who are always on the go, whether to work or school.
So I proposed the idea to Trang and worked hard to convince her. She was reluctant at first but decided to go along with it. We were also comfortable with this venture as we were already a landlord in her old condo and it had been going well so far. With renovation completed shortly after, we found a perfect tenant and it was rented out within a couple of weeks after closing.
Plans to Acquire Our Third Investment Property
"Our current plan is to aggressively payoff this condo in the next three years using portion of our income."
Our current plan is to aggressively pay off this condo in the next three years using a portion of our income. With a loan balance of $120,000, we plan to contribute an additional $30,000 a year of our own money and will be on track to pay off this condo by December 2025. The HOA is not included in the amortization table as it is unrelated to the loan, but the rent covers the HOA along with the below payments.
Once we have this property paid off in 2025, it will generate a profit of roughly $1000/month. We will apply this profit, along with the same monthly contribution of $2000 of our income, and we will be able to pay off the next property at a faster rate. However, now you can contribute less personal income in order to pay off the property in the same 3-year period. You can adjust the payment amount to meet whatever payoff period goal that you are looking for. It could be slower than three, or even faster than that.
"We will apply this profit, along with the same monthly income to now pay off the second property at a faster rate"
Once you have the second property paid off, now you will have a monthly profit of $2000. You can use this amount to pay off a third investment property for example.
I know this isn't a proprietary secret or anything, but it is a no-gimmick, practical approach to continuously accumulating investment properties and adding them to your investment portfolio using the profits from the existing properties.
Our second Investment Property in River North, Chicago after the Renovation
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