and real estate aspirations, Pierre Dunagan, president of The Dunagan Group, a financial advisory firm in Chicago, looked closely at Young’s situation. Simply put, Dunagan was impressed. “He’s the poster child for doing it right — for sacrificing for the short term to achieve long-term goals,” he says.
Continue acquiring real estate. Young’s one building covers his expenses, and each month he has about $1,000 left over that he can continue to pile into his acquisition fund. “By buying apartments, he’s buying streams of income,” says Dunagan. “He’s essentially buying a salary for himself.”
In time, Young would like to clear between $8,000 and $10,000 a month from real estate. To reach his goal, he’ll need to net an additional $4,000 to $6,000 per month in rental income. Dunagan says that by purchasing two or three small properties, netting at least $2,200 a month per building, Young would put himself in the ballpark. “That $6,000 would pretty much be gravy,” says Dunagan.
Dunagan advises Young to focus on buying properties with four units or less, because he can purchase them with only a 10% down payment (20% is required for buildings with five or more units, because they’re considered commercial properties). “Putting 10% down will keep him from depleting his acquisition fund,” says Dunagan.
Tackle the first mortgage. Dunagan says Young should concentrate on paying off the mortgage on his first building. “Paying off that mortgage will free up $1,200 a month in cash flow,” he says. Ideally, Young should quickly purchase two additional smaller properties, and then begin applying $1,200 a month from the rent money he collects to aggressively pay down the mortgage on his first building.
Purchase a primary residence. While the $400 rent Young pays for his apartment isn’t burdensome, he should set a goal of buying his own home within two to three years. With the cash flow from the apartment buildings and Young’s history of disciplined saving, Dunagan says obtaining a home shouldn’t be a problem.
Shore up retirement savings. Young is off to a healthy start for his retirement. Analysis of his 401(k), IRA, and mutual fund accounts, Dunagan says, reveals that Young has a diverse portfolio of small-, mid-, and large-cap stocks, as well as international assets. Dunagan recommends that Young set up a variable annuity with a mutual fund option so that he can take advantage of the tax deferment while maximizing growth. The $2,000 contest winnings could be used to start the account, to which Young could then contribute $500 a month.
Protect the investment. Bad tenants can create maintenance costs, and if they don’t pay the rent and have to be evicted, there are legal expenses and loss of income to deal with. That emergency fund of $23,000 is a safety net.
Invest in insurance. Young has been careful to buy property and casualty insurance to cover rebuilding costs and pay off his mortgage in the event of a fire. Dunagan says Young should purchase similar coverage on all future properties.
Create an estate plan. Dunagan says Young