What would you do? 50 year old starting the journey

Westfield, IN · Member since 2017 · 8 posts · 15 votes

I am 50 and have a goal to replace my income, or at least a lot of it by 60. My wife and I have strong W2s and are closing on a 300K HELOC this week. We are in process of building an Airbnb (Den Modern Cabin in Adirondack mountains) in her hometown in upstate NY where we already own 15 acres. I want something to get going here in Indianapolis as well and have a decent start and some solid contractors. My initial thought is BRRRR, but with rates where they are a bit nervous there. Duplex sounds interesting and cash flowable, but I am also thinking of turnkey (looked at rent to retirement) to get my feet wet and not get too buried in my first door. There are so many options, but having 300K HELOC available gets me excited. What would you do? Psyched to learn from you all.

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Zach LemasterBusiness Member

Rental Property Investor · Denver, CO · Member since 2015 · 1k+ posts · 3k+ votes

@Brian Beck

Thanks for the mention about RTR! We are available to answer any questions you have at any point in time.

You are definitely in a good spot with having that much equity. I would take some time to really define your goals and strategy to see how you should apply that HELOC to scale. Do you want to continue down the development side & focus more on STRs? Why Indy? We are heavily investing in Indy, but we also like many other markets that perform excellent as well. Recently I've been focused personally on how to make my STR's perform in the top 1% of our market which is a 6 figure different from being in the middle 50% of where avg properties perform. It's all in the mngt! Anywho, our team is available to answer any questions you have at any point in time. Here are some threads that might be interesting to read as well from previous RTR clients:

https://www.biggerpockets.com/forums/92/topics/518583-feedback-on-renttoretirement-and-zach-lemaster

https://www.biggerpockets.com/users/ZacharyCole/references

https://www.biggerpockets.com/forums/92/topics/765347-rent-to-retirement-review

https://www.biggerpockets.com/forums/44/topics/1058814-first-time-with-new-construction-cape-coral-fl?highlight_post=6055029&page=1

https://www.biggerpockets.com/forums/850/topics/895660-my-first-investment-property-an-out-of-state-deal

https://www.biggerpockets.com/forums/92/topics/983659-first-investment-property-with-rent-to-retirement?highlight_post=5677176&page=1#p5677176

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Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
3y
@Brian Beck
Hi. Welcome. Some random comments.
-if you and your wife have strong W2s, it's going to be tough to replace it entirely with RE income. but maybe you have other investments? i'm working on a portfolio strategy where my income comes from: RE + savings + dividends + part time work. But, I am all-in on growing my RE portfolio too. I'm just not counting on the cash flow.
-BRRRR and turnkey are near opposites. Does BRRRR interest you? It's a ton of work. If it interests you, that's great. And yes, high rates are making the refi part tough. But with your income, you could probably refinance into a conventional loan rather than something with a higher interest rate.
-Do you have cash available in addition to the HELOC? Just curious, what do you like about the HELOC? If it's "preserving your cash," that sounds good to me.
2 Reply
Nate Sanow
Investor & Agent · Tulsa, OK · Member since 2016 · 1k+ posts · 1k+ votes
3y
For whatever it’s worth I admire the humility and hope to have more of it. Now, if it’s me, I’m double-down on Brrrr… yes, rates suck. But the opportunity cost in 5 years will be higher… and between now and then I believe the rates will be lower.
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Benjamin AakerPro Member
Rental Property Investor · Brandon, SD · Member since 2015 · 1k+ posts · 1k+ votes
3y
Hi Brian,
Welcome to BP and congrats on the short term rental you are building. Is the 300k above what you are using to build the Airbnb? 300k might get you a nice 8-plex. That's a nice niche because it's too big for people just starting out and too small for most of the bigger guys. Good luck.
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Brian Beck
OP
Westfield, IN · Member since 2017 · 8 posts · 15 votes
3y
Nicholas - thanks for the note! I guess the big excitement of the HELOC is using equity that is doing nothing for me today. As I start to look more into it, I keep going back to BRRRR mostly due to the fact that I don't want to increase my debt, and that I can keep getting back to zero if done correctly. If I just buy a rental via traditional loan, the cash is eaten up by the down payment which greatly limits the number. I get it that it is a lot of work, but if I could do it and figure it out, seems like a winning strategy.
2 Reply
Brian Beck
OP
Westfield, IN · Member since 2017 · 8 posts · 15 votes
3y
Nate- Loving your double down on brrrr comment. I am scared to death to pull the trigger, but sounds like a fun challenge and if it works, R.
0 Reply
Brian Beck
OP
Westfield, IN · Member since 2017 · 8 posts · 15 votes
3y
Ben - the Airbnb we used personal funds for most, and will just end up getting a small mortgage for maybe 50K. I like the 8 plex, but I am just a baby and that is scary. appreciate the insights regardless!
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Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
3y
@Brian Beck that's right. One thing to remember is that a great BRRRR will generally reward you with the equity you gained out of the rehab and may or may not cash flow well - you might be close to break even. Finding a BRRRR that gets you equity and cash flow and lets you get all of your cash back is possible but really, really difficult right now.
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Tyler Solomon
Lender · Austin, TX · Member since 2022 · 223 posts · 244 votes
3y
Quote from @Nate Sanow:

For whatever it’s worth I admire the humility and hope to have more of it. Now, if it’s me, I’m double-down on Brrrr… yes, rates suck. But the opportunity cost in 5 years will be higher… and between now and then I believe the rates will be lower.

I agree with Nate on this one. It's all about making sure the number's work out. Interest rates will ineveitably come down - find deals where the numbers make sense at today's levels and hold for appreciation / cash flow, refinance when rates are prettier. As they say, the best time to invest in RE was yesterday - but the second best time is today!
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Brian Bohrer
Real Estate Agent · Colorado Springs, CO · Member since 2021 · 279 posts · 121 votes
3y
Hey Brian,
It sounds like you have a good strategy you just need the nudge to get out there a do it! The HELOC is a nice way to start out with some cash but the variable rate could come back and bite you a bit if rates continue to creep up. It could be a good strategy to get you started but you would want to pay that back asap and sometimes BRRRR's can take a little longer than you like if you don't have a good plan and construction team ready to pounce when you are!
You may consider using the HELOC for the Downpayment and utilize those nice juicy W2's to qualify for the best rate you can get on a mortgage! After all, that first payment usually isn't due until 45 to 60 days after close... That's a lot cheaper than paying the interest on a $300K HELOC while you are renovating! If you had a standard mortgage on the BRRRR house then you could use the HELOC to finance your renovations. Once completed you could refinance into a 30 year loan to pay off your HELOC and set up the next purchase!
It is true what Nicholas said, it is going to be hard to find cash flow and full equity in today's market unless you are shopping in the midwest (I have a Nebraska home that works!). But homes in those markets do not appreciate anywhere near what a home would in a more expensive market. I wouldn't worry too much about year one not making the cash you expect, its year 5+ where the money starts to roll in!
I wish you the best on your Investment Journey, Keep us posted!
Take Care,
2 Reply
Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y
Do smaller, quick projects to build up capital. Leverage your cash as much as possible and close on as many deals that will cash flow as possible. I have bought 10 in 6 months. If your timeline is 10 years you will be wealthy
4 Reply
Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
3y
I am all for big goals, but replacing two strong W2's in 10 years is ambitious and you set yourself up for frustration. For quick math use $200 net per door and you can calculate how many doors you need. The first property is proof of concept anyway. Most new investors overthink it completely, in reality it's a project to learn and practice. Making money comes later. Real estate investing is a lot more about equity than cash flow and the market is forcing us to look this more, the days of quickly acquiring rentals as an ATM are gone. If you can grow and maintain a 10% cash on cash and later a 6%-8% cash on equity return you are doing great! Maybe start with a smaller goal for 2023 and then go from there. Even if you can't replace your W2 in full, creating an additional million in net worth by the time you retire is very doable.
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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3y
The problem with using your line of credit is that you are borrowing mone to borrow money. You'll end up over-leveraged.
It makes sense on a BRRRR because you use the HELOC to purchase, you renovate and rent the place out, then you refinance it and pay off your HELOC. It's the same concept as a hard-money loan. You don't want to borrow hard money or a HELOC and then carry it forever.
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Brian Beck
OP
Westfield, IN · Member since 2017 · 8 posts · 15 votes
3y
Wow. So much great stuff here. WIsh I had time to comment on each one here but this pesky W2 has me slammed today.

Thank you all so much!

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Patrick DruryBusiness Member
Real Estate Agent · Columbus, OH & Cleveland OH · Member since 2021 · 1k+ posts · 2k+ votes
3y
@Brian Beck
That's a very achievable goal. A mentor of mine that introduced me to real estate didn't start till he was 50. Over the last 8 years, I believe he has acquired 50 units. He just retired from his day job this past year and is a full-time investor.
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Michael Gansberg
Investor · New York City, NY · Member since 2015 · 388 posts · 563 votes
3y
@Brian Beck - congrats on starting out. Be careful of Fool's Gold- in real estate, that's a very high yield. Higher yield usually equals higher headaches. That sort of thing is especially costly if you have a high paying job that requires focus. Many new investors focus on number of doors- I suggest quality over quantity. It's vastly preferable to have one door netting you $1000/month vs. 20 doors netting you $2000 per month.
During retirement- which sounds like it's about 10-20 years off for you(just guessing) - you'll want to replace low-headache properties with no-headache properties. That's a task for the future, but something you'll want to start learning about now. If you want to replace your income, or most of it, assume you'll need about 20X your income in net assets. It's conservative, but that's not a bad thing.
As far as BRRR(or however many Rs there are,) at my not-so-advanced age I can't imagine living with my tenants. Probably because I've had tenants for 20 years and know what it's like when things go south. And no matter how nice you are, one day, things will go south between you and a tenant. I don't think it's worth the risk, so just drop whichever 'R' corresponds to living with your tenants.
Turnkey- don't get me started. Turnkey providers are faux fiduciaries, telling you that you should overpay for one of their properties because of the low maintenance in the future when they can only promise the former, not the latter. Get a really nicely functioning house(and pay market value) and a good manager, skip the turnkey. Good luck, I hope you enjoy the ride as much as I have.
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Bud Gaffney
Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
3y
Welcome Brian! Get as many doors as you can with that 300K!
0 Reply
Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
3y
Not to be a downer on RE, but sounds like your strong w2's will set you up for a nice retirement in 10 years anyway.

I would focus in my diversified backyard of Indy and self-manage. But that's what I did and it has a steep learning curve. An out of state high touch STR build would not be my first go to but that's me.

I'd be like I'm already pretty set to retire nicely in 10 years, a couple local multis would help subsidize it.
I'd get a good local MF agent and find a performing deal together. Improve it as you go, not BRRRR.

Welcome and glad to have you!
2 Reply
Jaron WallingPro Member
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
3y
@Brian Beck How much market research have you done around Indianapolis? There are opportunities to buy cash-flowing properties. As I'm sure you're aware you won't find them in Westfield, Zionsville, Carmel, or BRip.

You sound like a busy man. A successful BRRRR nets more of the REI pie but like others mentioned it's stressful, time consuming, and generally a full on remodel. Then you get to find, screen, and manage tenants. That's my experience and it's great but my 9-5 isn't sooo busy and we're young.

There are plenty of strategies. You don't even have to buy property to be an investor now days :-)
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Bob S.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
3y
Quote from @Brian Beck:

I am 50 and have a goal to replace my income, or at least a lot of it by 60. My wife and I have strong W2s and are closing on a 300K HELOC this week. We are in process of building an Airbnb (Den Modern Cabin in Adirondack mountains) in her hometown in upstate NY where we already own 15 acres. I want something to get going here in Indianapolis as well and have a decent start and some solid contractors. My initial thought is BRRRR, but with rates where they are a bit nervous there. Duplex sounds interesting and cash flowable, but I am also thinking of turnkey (looked at rent to retirement) to get my feet wet and not get too buried in my first door. There are so many options, but having 300K HELOC available gets me excited. What would you do? Psyched to learn from you all.
Simple connect with those that provide rental properties 100% hands off, 10% or better net caps are to be had, Its all about your network and knowledge
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Tyler LingleBusiness Member
Real Estate Consultant · Indianapolis, IN · Member since 2021 · 440 posts · 292 votes
3y
My suggestion would be to use the HELOC to start with a duplex or something just to get the ball rolling. Then consider Airbnb on the northside which will cash flow verrrry nicely but cost ya a bit more. Then with some experience under your belt, it will help give momentum to do more risky (albeit more capital friendly) BRRRRR projects.

Spoken from someone that started with the "low hanging fruit" turnkey investing.
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Brian Beck
OP
Westfield, IN · Member since 2017 · 8 posts · 15 votes
3y
Quote from @Jaron Walling:

@Brian Beck How much market research have you done around Indianapolis? There are opportunities to buy cash-flowing properties. As I'm sure you're aware you won't find them in Westfield, Zionsville, Carmel, or BRip.

You sound like a busy man. Obviously a successful nets more of the REI pie but like others mentioned it's stressful and time consuming. It's generally a full on remodel and then you're finding, screening, and managing tenants. That's been my experience and it's great but my 9-5 isn't so busy and we're young.

There are plenty of strategies. Don't pigeon hole into something without considering other opportunities. Some newer investors do that with property types and then never buy anything.

Great points and really appreciate the insights Jaron!
1 Reply
Clayton Bownds
Investor · Montgomery, TX · Member since 2019 · 11 posts · 16 votes
3y
Quote from @Nathan Gesner:

The problem with using your line of credit is that you are borrowing mone to borrow money. You'll end up over-leveraged.

This is a great comment and worth thinking about... chances are, your HELOC is a variable rate that is influenced by the same current capital markets condition as the real estate debt you would be leveraging. This directly impacts your cost of capital and blended returns. What may look great on the surface could actually slow your progress toward your goal.

Wishing you nothing but success... you can do this!

/c

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Steven Foster Wilson
Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes
3y
Quote from @Brian Beck:

I am 50 and have a goal to replace my income, or at least a lot of it by 60. My wife and I have strong W2s and are closing on a 300K HELOC this week. We are in process of building an Airbnb (Den Modern Cabin in Adirondack mountains) in her hometown in upstate NY where we already own 15 acres. I want something to get going here in Indianapolis as well and have a decent start and some solid contractors. My initial thought is BRRRR, but with rates where they are a bit nervous there. Duplex sounds interesting and cash flowable, but I am also thinking of turnkey (looked at rent to retirement) to get my feet wet and not get too buried in my first door. There are so many options, but having 300K HELOC available gets me excited. What would you do? Psyched to learn from you all.

First things first, I would find a mentor. I always recommend to anyone starting out to have a mentor so that you can bounce your ideas off of and they have already done it so you can learn from their experience. Try to attend your local REI networking groups and meetups. Connect with as many real estate mentors as you can.
You can also consult with lenders, brokers and ask them for suggestions on who might be a good real estate mentor most will be able to provide one.

Often on a fixer-upper, you can make more money than on a turnkey but that is also riskier. You will always go over your budget when starting out because you are learning so make sure you set aside money for that. The first deal that you make on your real estate journey will usually be the worst deal as you're learning things but it will get better as you learn and progress.
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Travis Hill
Investor · Multiple · Member since 2019 · 175 posts · 150 votes
3y
@Brian Beck LOTS of solid advice for sure as I scroll through the comments. I will share mine as well. With any investment there is YOUR risk tolerance. Each person has their own level. Each investment pings that tolerance. Here are options available for your review:
-With the HELOC there is a method called 'debt arbitrage.' The money from the HELOC is used to purchase something greater than the payment of the HELOC. The difference between those two numbers (the delta) is yours to reinvest. HELOC is 3% Investment 10%, you keep the difference.
-Private lending. You get to set the percent of return and the duration. First position as a guarantee. Monthly payments or capital and interest at the end. Points if you desire.
-Syndication. Large MF invested as a Limited Partner with a set return for typically a 5 year hold.
-Buying a portfolio of properties with property management in place.
In the end, be comfortable with your choice from the numbers you run (underwriting) and the risk tolerance you have.
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Brian Beck
OP
Westfield, IN · Member since 2017 · 8 posts · 15 votes
3y
Quote from @Brian Beck:

I am 50 and have a goal to replace my income, or at least a lot of it by 60. My wife and I have strong W2s and are closing on a 300K HELOC this week. We are in process of building an Airbnb (Den Modern Cabin in Adirondack mountains) in her hometown in upstate NY where we already own 15 acres. I want something to get going here in Indianapolis as well and have a decent start and some solid contractors. My initial thought is BRRRR, but with rates where they are a bit nervous there. Duplex sounds interesting and cash flowable, but I am also thinking of turnkey (looked at rent to retirement) to get my feet wet and not get too buried in my first door. There are so many options, but having 300K HELOC available gets me excited. What would you do? Psyched to learn from you all.

Just cannot get over the tremendous response I am getting here. I have always heard about this great community, but just WOW. All of these nuggets from so many of you that are already successfully doing it. Many thanks to each of you!
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