I don’t know about you, but I LOVED playing Monopoly when I was younger. My family complained that I always took it a little too far and was way too serious, but I was always perfecting my strategy and I’m just a little competitive. I enjoyed the strategy and decision making of whether to add more little green houses or buy more. Most of the time I focused on buying until I went broke early on and then would go back and place houses on every property before doubling down on the next round. This way I could get more income opportunities and build up along the way.
After 10 years of investing, I’ve enjoyed creating my own form of real life Monopoly with real money and real houses. Interestingly enough, our real life strategy has been almost identical to my game time strategy. Now that we’re in a position of equity and our annual rental portfolio income is high, we are able to scale up and upgrade some of our properties.
Here is a perfect example of what real life monopoly looks like to us:
This is my husband Travis’s first house, the one I jokingly required he buy when we started dating. Little did he know that I had big plans for him…
Anyway, this house was the perfect rental house from a criteria standpoint.
- Single story – Check
- 3 bedrooms 2 baths – Check
- Built in 2001 – Check
- Gas heat – Check
- Small, fully fenced back yard that backs up to the neighborhood park – Check, Check
At one point I believed that we would keep this house forever and just pay it off. It literally checked all of the perfect rental criteria boxes, and was super easy to rent.
Here is another almost perfect rental property, one of my single family homes that I bought at the foreclosure auction (sight unseen) in 2012:
Yes, these houses are exactly the same color and were built by the same builder. Builders weren’t too creative in the early 2000’s. They are also only a mile away from each other.
This house is a 3 bed 1.5 bath two story, gas heat, built in 2003, small fenced yard and a two car garage. This one actually performed much better than the one above, since I bought it zero down I have no capital invested and it cash flows $580 per month.
We are now getting ready to sell these two houses.
Are you wondering why I would ever sell such perfect rentals that are easy to rent, new and that were purchased in a down market (2008-2012)?
To me, it’s the equivalent of removing little green houses (almost literally) and building hotels in Monopoly.
On a recent Saturday night, as all normal couples do, my husband and I were reviewing our financial whiteboard of real estate holdings. I looked at these two (our last two single family rentals) and shared my frustration that these had the lowest monthly cash flow of all of our properties. My husband reminded me that these are long term holds, our newest properties in age, and that we had always talked about just paying these two off.
Without issuing a rebuttal, I pulled out my calculator and started crunching some numbers. As if I had come to an amazing conclusion, I announced to my husband that we were to sell these two houses.
At first he looked at me like I was crazy, then he asked why would we do that, those were his favorite two because he never had to work on them.
When I showed him the math, he understood.
Just looking at these two houses, the monthly cash flow is $457 combined. The net profit on a sale of these two is over $200,000 since they have so much equity.
Currently, we are finding 15%+ cash on cash returns on properties out of state and locally. If I were to take that $200,000 and apply the 15% ROI calculation, we could go from $457 per month in cash flow to $2,500 per month in cash flow.
Better yet, we could use a 1031 exchange with these properties and defer taxes.
In that moment, I changed our entire investing strategy, which had started out by buying as many properties as we can with high cash flow and using little to no money down, paying them off and living off the cash flow. Our new strategy will include trading in the high equity lower cash flowing properties in for larger cash flowing properties. At the same time, I also upped our criteria for new properties to be $1000 per month in net cash flow on each property. I use to just use the 15% ROI but on less expensive single family homes, the cash flow is so small that one bad tenant could wipe out an entire year’s worth of income.
While I do have to admit, it’s a little scary selling our best rentals without having replacement properties, but I also like the challenge 🙂
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