Real Estate Overload?

Tyrone Springs has youth and ambition in his favor. At 23, he’s managed to buy seven properties, four in Philadelphia and three in Tulsa, Oklahoma, valued at $733,000. Springs understands investing in real estate is crucial to wealth building. He attends seminars, reads up on the topic, and regularly visits the sheriff’s department to check out home auctions.

For Springs, buying real estate started out as a safety net. He felt more comfortable buying houses than buying stocks. The young investor doesn’t make a princely sum at his job as a commercial document specialist with the Bank of Oklahoma; he earns about $34,000 a year and nets another $17,340 annually from rental income. Springs, a native of Orange, New Jersey, bought his first house in Philadelphia in December 2002 for $65,000. At the time, he was a senior at Howard University. He bought two more Philadelphia row houses for less than $50,000 each in 2003 and another house for less than $50,000 in 2004.

When he relocated to Tulsa, he began to eye the area for potential real estate deals. He started out by purchasing a primary residence for $42,000 in 2004. A year later, he bought two more properties for $68,500 and $132,000 each.

Springs’ seven properties have a total of eight units; one is a duplex. The interest rates on the mortgages range from 6.38% to 8%. Right now he clears a little more than $1,400 monthly in rents. "I want to have enough properties where I’m getting at least $5,000," he says.

Though he has extensive spreadsheets to help him manage his property-related bills, it’s tough dealing with different mortgage companies and property-management firms, which charge him between 8% and 10% of the monthly rental income. Moreover, "insurance costs and property taxes have increased," he adds.

Those extra expenses have helped create some $13,000 in credit card debt. Add to that mortgages, a car loan, and student, and personal loans, and Springs’ total debt soars to more than $500,000. It’s not surprising that he hasn’t managed to save much. His 401(k) is down to $5,000 from $8,000, due to a loan he recently took out for real estate expenses. He has $2,500 in an IRA, $3,000 in savings bonds, $500 in a former employer’s stock, and a little more than $13,000 in checking and savings accounts.

In spite of his heavy debt, Springs isn’t ready to unload his properties. Ideally, he would like to keep them for five to 10 years and evaluate the internal rate of return at that time to determine if it’s practical to stay invested.

BLACK ENTERPRISE turned to Kathy Williams of the Williams Financial Group in Oklahoma City to put the budding real estate maven’s financial situation in perspective. "Tyrone is only 23 years young. When a young person begins a strategy of any kind, it is to be applauded," says Williams. However, he has an overinvestment in real estate, which is more than