Advice for moving towards full time investing

8 Replies

Hi All,

Long time reader, first real post. Just a bit of background, I am 28 living in a large metro area in Massachusetts. I bought my first investment property at 22. This was a 2-family in a great neighborhood which I have lived in for the past 5+ years. At the time, I was working in construction/excavation as a salesman/estimator. For the first few years I had a tough time but eventually started to make a bit more money which helped. 2 years ago I switched careers that increased my pay and lowered my cost of living. Over the past 5+ years our local market has blown up and I am in a position now where I am making great money (after commissions I make 100-150k py), I have very low costs (Work pays for my vehicle plus all expenses included with that such as fuel, maint, ins. etc., my health insurance, and half of my meals). My two family which I purchased for 212,000 is now worth between 350-400k and I owe 175k. My only debt is my multifamily and student loans and I am able to save 50-100k per year.

Now, I love my job but do know that my goal has always been to live strictly off of real estate investing and now that I am a bit more established I want to move towards that goal. I know how to run basic numbers on financing, expenses, etc. and understand in basic terms the basics of REI. Currently our market is insane and properties are going for far more than they are worth on an investment standpoint though there have been a few decent deals I have seen. The general feeling at least around here is that we have a year or two left before the market goes down.

My question is this, with the equity I have in my current property, which really doesn't profit me a ton, how would you go about pulling out equity? With the market hot should I sell? (I do have the option to move back in with my parents or move in with a friend to keep costs low). Should I do a cash out refinance? Would you buy now for a decent deal or hold out a year or two and save more and wait for the market to fall? How has everyone else been successful?

Also, If there are any local experienced investors in the Worcester County area please feel free to reach out, I am always looking to hear success stories, learn more, and get advice.

Swanny here and I just retired from my teaching job.  I am 55 yrs old and my advice to you would be to chunk in all your expenses with cash flowing RE like I did and am now financially free.  I told my story and how I did it on Podcast 238.  Check it out!!

Swanny

Hi Andrew,

Congrats! You have set the table nicely for yourself. I invest both in central Massachusetts and around Boston and have adopted the philosophy of taking what the market gives you. People have been waiting 5 years for the near key to “correct”. Rates are low and there is not enough housing, I don’t think you’re gonna see some bubble burst. Also, don’t listen to the negativity, there are deals to be had. I have an 8 unit under agreement right now in Central mass at a 9 cap. Start networking and making relationships, my last 6 deals have all been “off market”.

I would suggest pulling out a heloc, that way you only pay for what you use. If your Brrrr, you can then replenish the heloc and repeat the process.

Happy house hunting!

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Hi Justin, Thank you for reaching out. So my plan in the past had been going the BRRR route and originally I wanted to do a HELOC. What are your thoughts on 2-Family properties in general? When I bought it I was young and eager to invest and I'm happy I did because it is an amazing neighborhood but I don't see 2 Family's worth it. My place is a bit outdated and I know I could get higher rent with some renovations, but this is the way I look at it.

I have looked into investing $80k or so into my property just to update it and get it a bit more attractive and then doing a HELOC or Cash Out Refinance to purchase another property and continue on the BRRR strategy. But with the two family, Let's say I did that, The most rental income I am going to see for the year, with no vacancy, is going to be let's say $40-$45k. After paying the note and expenses I'm realistically only walking away with $5-10k and that in my opinion is generous. Yes I am working the loan down, building equity, and the neighborhood is doing fantastic as far as appreciation goes so as a tool to borrow against it is great, but long term is it truly a good investment because even though I love the place and the neighborhood and the type of renters it attracts, There really isn't much meat on the bone to actually make a living off of.

I am currently looking at 3 potential properties, 1 is right within my city, 600k, 5 units across two buildings. Really great bones and would not take much to renovate and then pull equity out of. All in, I'd probably be into it for 700-800k but talking to my appraiser friend I think I could actually get it appraised between 900k and 1 million which would be nice as far as reinvesting. Another property is a 3 family for $250k (Unheard of around here) but probably needs $200-$250k in improvements and again I fall into "Is this really going to cashflow enough or is it just a tool to fund the next one plus a small profit each year". Lastly, I am looking at a 14 unit building for $1.2 million which I would have to sell my current place, and take a small loan to purchase, but after paying all expenses and the note I see it cashflowing 60-70k per year, however it would take awhile to pull any equity out of it therefore slowing how fast I can grow aside from the money I save from my job.

Obviously my COC returns would be really good for my current property since I only put 9k down on it originally but as far as long term cashflow I don't see it as a home run except for the fact that I can pull equity from it. On the other hand, the large property is great cashflow but I would now need to borrow extra money for DP and will not gain the advantage of pulling equity from improvements .Any thoughts?


Originally posted by @Justin Rank :

Hi Andrew,

Congrats! You have set the table nicely for yourself. I invest both in central Massachusetts and around Boston and have adopted the philosophy of taking what the market gives you. People have been waiting 5 years for the near key to “correct”. Rates are low and there is not enough housing, I don’t think you’re gonna see some bubble burst. Also, don’t listen to the negativity, there are deals to be had. I have an 8 unit under agreement right now in Central mass at a 9 cap. Start networking and making relationships, my last 6 deals have all been “off market”.

I would suggest pulling out a heloc, that way you only pay for what you use. If your Brrrr, you can then replenish the heloc and repeat the process.

Happy house hunting!

What is the end game? How much do you need to retire....I think the answer to that will start guiding you in the direction that you should head and then back into how many units you need to have to do that. There are lots of investors who have retired nicely off 2-3 unit building portfolios. Not my style and sounds like not yours either. Sounds like we both like the bigger stuff!

Does that 5 unit across two buildings happen to be green 😜 in a city that begins with W? If it were me, I’d house hack the three unit with a low down payment loan and find a partner to take down the 14 unit. Then you get the best of all worlds.Tell everyone what you’re doing, money finds you(especially when the returns are good). We have partners on a couple deals which has allowed us to start to scale. I still think the heloc provides a bunch of flexibility and would be the direction that I would head.



Bigger the better, might as well spread those expenses out. And yes, It's  lovely green isn't it? I figured be vague but it's pretty easy to tell that I am from Worcester and my two family happens to be close to that property. Are you looking at it as well? Seems like one of the better deals in the city and I love (which some people may not) how dense it is packed in there, no landscaping, no plowing, absolutely love some of these old Worcester setups that would never be allowed these days.

@Andrew Duncan - You are in a great position. All good problems to have. Given the uncertainty and the fact that you may invest now or later, a HELOC would be a great option to access the equity when you find the right property. I personally utilized a HELOC on my primary residence in Boston and used it to buy my next two real estate deals. I currently have a 3 family in Worcester and am working on closing another 3 family. In addition, if you are making so much, you should be able to pay down the HELOC very quickly if you did utilize those funds for a down payment.

Lastly, if you are in the Worcester area, I know of a great real estate meet up occurring soon. Check it out, it seems like a great place to network with other investors in the Worcester area and get a lot of your questions answered. Below is a link:

https://www.biggerpockets.com/...

@Andrew Duncan I'd encourage you to take action and not wait. No one can predict/time the market, and you don't want to be waiting on the sidelines indefinitely. You could be waiting for a while if you decide to wait for the market to fall. 

Thank you all for reaching out, I appreciate it all. I will have to weigh my options on HELOC vs Cash Out Refinance because I may have some other benefits to the refinance. I used to be very scared of buying during a hot market but lately have realized that its important to not wait so it is good to hear all of this.