Getting my Third Property? I’m stuck
Real Estate Agent · Las Vegas · Member since 2018 · 197 posts · 143 votes
Getting my Third Property? I’m stuck
Most Popular Reply
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
3yQuote from @Josh Edelman:
Quote from @James Hamling:
Quote from @Josh Edelman:
Quote from @James Hamling:
Quote from @Josh Edelman:
I want to buy my next investment. Looking for advice on way forward. Here is the skinny:
- I have one rental property (VA loan)
- took out a Heloc to buy my second property
- I live in the second property (VA loan also)
- I've used up my VA loan limit
- I have $50k saved for a down payment
- I live in Las Vegas and don’t mind investing out of state
- Best advice for third property? 25% down conventional out of state? Move out to a primary residence on a third property?
- goal is not to sell the current two - they cash flow well
Thanks!
Refi #1 into a conventional. Yes, rates are higher BUT given you have a strong equity position, that should help mitigate that rate a touch. And it unlocks VA for #3.
Unfortunately I would be cash flow negative if I refinanced. Is that still your recommendation? I currently pay $1200/month. New mortgage would be $2300/mo.
Is the $1,100 difference from wrapping the heloc in and new conventional rate?
If you have that heloc with a balance, your not ready for the next one. You need to clear that acquisition $.
Sorry let me clarify:
The current mortgage is $1200
The heloc payment is $500
The new mortgage with a 6.5% conventional would probably be closer to $2300
I'm not sure what would be better - wrap the heloc into the rate or just pay it off from the cash out refi.
Ok Josh, understand what I am advising from has a basis in 2 different foundation points. The first is market cycles, the second is investor psychology.
I would say you need to pay-off that heloc, full-stop. Not interrelated to a purchase, just pay that off. Because think, that was your down payment on a property. You borrowed that down, so you must have that as priority #1 of paying for that down. A down is supposed to be cash in hand.
I get what your thinking, but this is not the market cycle for that. Your looking at using maximum leverage, and this is NOT the time for maximum leverage, it is time for being DE-leveraged.
And on the investor psychology side of things, you gotta keep in mind that down $, that's cash-in-hand. $ used to secure a property, and borrowing for it is "cheating". So, you need to feel a kind of anxiety associated with that, and a burning desire to get that paid and cleared ASAP.
When one thinks like this, it helps align the mind to keep a focus on proper production of property. It put's you in a mindset to keep driving at delivering cash-flow, in general.
We are in STAGFLATION tail-spin, with powers that be pressing for recession to prevent stagflation. Many bad things can result from such for the heavily leveraged person. My #2 money-maker in last tight economic cycle, was buying out failed investors. All of them had same story, the leveraged tight as a nats-azz, and then something happened, something they did not have a buffer to fall back upon, and next thing there deep in the red with no way to turn. Don't be that guy.
Todays market is about VERY smart acquisition, with ample margins, contingency funds, contingency for contingency.
I know your licking those chops at #3, but what's most important is to keep going vs pumping unit count to just loose it all, or any, right.
The #'s are clear, you gotta take a step back, clear that borrowed down $. Now your way better set to convert mortgages when do AND have a contingency fund when/if need in the interim.
Keep in mind, cash in hand is dyeing at about 8% right now (inflation). Paying off heloc removes that interest charge AND loss of $ via inflation. So if heloc is say 6%, that's a 14% saving your affecting. Because Real Estate moves with inflation, right, so $ in real estate is at net 0 to inflation. That's 0 vs -8. So paying off heloc should be viewed as a 14% ROI. That's smart $, is it not.
So take it in smart steps. Stop thinking about #3, think about stabilizing what you got, to be best set to jump on #3.
31 Replies
- Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes3y
@Josh Edelman congrats on your first two! I’m in Las Vegas right now and could tell you all about Rochester for your third!
I don’t care to gamble. Funny thing, I was just telling someone, why gamble when I can win 90% of the time with real estate? (And it’s really higher than that.)
- Investor · Atlanta, GA · Member since 2020 · 294 posts · 142 votes3y
@Josh Edelman
Do you have a wife and/or kids? If not, another owner occupied property is probably the easiest and least expensive way to get a 3rd property. It needs to be a a good investment property to buy and hold i.e it will appreciate and cash flow when you move out and rent.
- 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
How much equity do you have in the current properties?
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
This is up to you and what your investment goals are. If lending is your constraint there are DSCR loans that will allow you to take as many loans as you want as long as the property cash flows. Hoping to use your VA loan for investment property will handicap you.
- Real Estate Agent · Las Vegas · Member since 2018 · 197 posts · 143 votes3yThanks Larry! I'd love to connect if you don't mind. I'm an agent in Vegas but I'd be all ears to hear about Rochester. Thanks again!
Quote from @Larry Turowski:
@Josh Edelman congrats on your first two! I’m in Las Vegas right now and could tell you all about Rochester for your third!
I don’t care to gamble. Funny thing, I was just telling someone, why gamble when I can win 90% of the time with real estate? (And it’s really higher than that.)
- Real Estate Agent · Las Vegas · Member since 2018 · 197 posts · 143 votes3yThanks! I've gone through one lender for a DSCR loan, however DSCR rates were extremely high making anything cashflow negative. Do I keep shopping for other lenders for DSCR or find another strategy? Very very tough to get these rates down of course.
Quote from @Eliott Elias:
This is up to you and what your investment goals are. If lending is your constraint there are DSCR loans that will allow you to take as many loans as you want as long as the property cash flows. Hoping to use your VA loan for investment property will handicap you.
- Real Estate Agent · Las Vegas · Member since 2018 · 197 posts · 143 votes3y
Quote from @Adah N.:
@Josh Edelman
Do you have a wife and/or kids? If not, another owner occupied property is probably the easiest and least expensive way to get a 3rd property. It needs to be a a good investment property to buy and hold i.e it will appreciate and cash flow when you move out and rent.
Thanks Adah! I do not. I have a girlfriend who is moving in with me. I will consider this option. Thank you!
- Real Estate Agent · Las Vegas · Member since 2018 · 197 posts · 143 votes3y
Quote from @Joe Villeneuve:
How much equity do you have in the current properties?
Not much, combined probably $80K
- 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
What are the PV's and equity in each.
- 3yRobin SimonBusiness MemberLender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
Quote from @Josh Edelman:
Thanks! I've gone through one lender for a DSCR loan, however DSCR rates were extremely high making anything cashflow negative. Do I keep shopping for other lenders for DSCR or find another strategy? Very very tough to get these rates down of course.Quote from @Eliott Elias:
This is up to you and what your investment goals are. If lending is your constraint there are DSCR loans that will allow you to take as many loans as you want as long as the property cash flows. Hoping to use your VA loan for investment property will handicap you.
What rates have you been seeing on your DSCR quotes? The market has been quite volatile and if you are putting 25% down then if your credit is solid a lot of deals are cash flowing again on DSCR, especially if you pick the right market
Harpoon Capital512 Reviews - Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3y
Quote from @Josh Edelman:
Based on what you've shared, I'm concerned you are over-leveraged and at risk. You have almost no equity and the little bit you have was gained by luck, not superior investing skills. I still predict the market is going to drop and we're going to pay the piper for all that "free" COVID money. If the market does drop, places like Vegas will be hit hardest. The equity you currently hold could disappear in a matter of months, leaving you with two properties that are under water and under-performing.
What would I do? If the opportunity exists to move, I would probably sell the properties while you've got a little equity and invest that money in a market that can weather a downturn.
The DIY Landlord Book4.7248 Reviews - Investor · Fort Lauderdale, FL · Member since 2020 · 1k+ posts · 755 votes3y
It sounds like you’re doing great and using your money wisely for investments. Using the 3rd property as you’re primary might be the easiest move as you won’t need to put down 25%. If it is big enough and you’re comfortable, you can house hack it (either by splitting it or having roommates). I house hacked my primary 2 years here in south Florida and it has been great.
I would agree absolutely do not sell the first two properties unless there is an excellent reason for it.
It Is hard for anyone of us to give you the best advice without knowing all the details of your situation, but it sounds like you are on the right track
- Real Estate Agent · Las Vegas · Member since 2018 · 197 posts · 143 votes3y9-10%
Quote from @Robin Simon:
Quote from @Josh Edelman:
Thanks! I've gone through one lender for a DSCR loan, however DSCR rates were extremely high making anything cashflow negative. Do I keep shopping for other lenders for DSCR or find another strategy? Very very tough to get these rates down of course.Quote from @Eliott Elias:
This is up to you and what your investment goals are. If lending is your constraint there are DSCR loans that will allow you to take as many loans as you want as long as the property cash flows. Hoping to use your VA loan for investment property will handicap you.
What rates have you been seeing on your DSCR quotes? The market has been quite volatile and if you are putting 25% down then if your credit is solid a lot of deals are cash flowing again on DSCR, especially if you pick the right market
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes3y
Quote from @Josh Edelman:
I want to buy my next investment. Looking for advice on way forward. Here is the skinny:
- I have one rental property (VA loan)
- took out a Heloc to buy my second property
- I live in the second property (VA loan also)
- I've used up my VA loan limit
- I have $50k saved for a down payment
- I live in Las Vegas and don’t mind investing out of state
- Best advice for third property? 25% down conventional out of state? Move out to a primary residence on a third property?
- goal is not to sell the current two - they cash flow well
Thanks!
Refi #1 into a conventional. Yes, rates are higher BUT given you have a strong equity position, that should help mitigate that rate a touch. And it unlocks VA for #3.
- Real Estate Agent · Las Vegas · Member since 2018 · 197 posts · 143 votes3y
Quote from @James Hamling:
Quote from @Josh Edelman:
I want to buy my next investment. Looking for advice on way forward. Here is the skinny:
- I have one rental property (VA loan)
- took out a Heloc to buy my second property
- I live in the second property (VA loan also)
- I've used up my VA loan limit
- I have $50k saved for a down payment
- I live in Las Vegas and don’t mind investing out of state
- Best advice for third property? 25% down conventional out of state? Move out to a primary residence on a third property?
- goal is not to sell the current two - they cash flow well
Thanks!
Refi #1 into a conventional. Yes, rates are higher BUT given you have a strong equity position, that should help mitigate that rate a touch. And it unlocks VA for #3.
Unfortunately I would be cash flow negative if I refinanced. Is that still your recommendation? I currently pay $1200/month. New mortgage would be $2300/mo.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes3y
Quote from @Josh Edelman:
Quote from @James Hamling:
Quote from @Josh Edelman:
I want to buy my next investment. Looking for advice on way forward. Here is the skinny:
- I have one rental property (VA loan)
- took out a Heloc to buy my second property
- I live in the second property (VA loan also)
- I've used up my VA loan limit
- I have $50k saved for a down payment
- I live in Las Vegas and don’t mind investing out of state
- Best advice for third property? 25% down conventional out of state? Move out to a primary residence on a third property?
- goal is not to sell the current two - they cash flow well
Thanks!
Refi #1 into a conventional. Yes, rates are higher BUT given you have a strong equity position, that should help mitigate that rate a touch. And it unlocks VA for #3.
Unfortunately I would be cash flow negative if I refinanced. Is that still your recommendation? I currently pay $1200/month. New mortgage would be $2300/mo.
Is the $1,100 difference from wrapping the heloc in and new conventional rate?
If you have that heloc with a balance, your not ready for the next one. You need to clear that acquisition $.
- 3ySam McCormackBusiness MemberReal Estate Agent · Cincinnati, OH/NKY · Member since 2021 · 1k+ posts · 833 votes
Hi Josh, I am an agent in Cincinnati, OH and I think Cincinnati has what you need! Cash flow AND appreciation, low purchase price, etc. Let me know what you think, I would love to answer any question you may have!
Sam McCormack Realtor - 3yMarc RiceBusiness MemberReal Estate Agent · Columbus Cleveland Dayton, OH · Member since 2018 · 2k+ posts · 1k+ votes
Quote from @Josh Edelman:
I want to buy my next investment. Looking for advice on way forward. Here is the skinny:
- I have one rental property (VA loan)
- took out a Heloc to buy my second property
- I live in the second property (VA loan also)
- I've used up my VA loan limit
- I have $50k saved for a down payment
- I live in Las Vegas and don’t mind investing out of state
- Best advice for third property? 25% down conventional out of state? Move out to a primary residence on a third property?
- goal is not to sell the current two - they cash flow well
Thanks!
You could get another owner occupant 2-4 unit through FHA, HomePossible, or a local portfolio lender who has a 5-10% conventional product on a 1-4 unit property.
Or invest out of state and put 15-25% down on an investment property.
Marc Rice | Investor Friendly Agent at Reafco Tailwind Team574 Reviews - Real Estate Agent · Las Vegas · Member since 2018 · 197 posts · 143 votes3y
Quote from @Sam McCormack:
Hi Josh, I am an agent in Cincinnati, OH and I think Cincinnati has what you need! Cash flow AND appreciation, low purchase price, etc. Let me know what you think, I would love to answer any question you may have!
I'd be interested to see what's going down!
- 3ySam McCormackBusiness MemberReal Estate Agent · Cincinnati, OH/NKY · Member since 2021 · 1k+ posts · 833 votes
Good to hear man! I sent you a DM!
Sam McCormack Realtor - Real Estate Agent · Las Vegas · Member since 2018 · 197 posts · 143 votes3y
Quote from @James Hamling:
Quote from @Josh Edelman:
Quote from @James Hamling:
Quote from @Josh Edelman:
I want to buy my next investment. Looking for advice on way forward. Here is the skinny:
- I have one rental property (VA loan)
- took out a Heloc to buy my second property
- I live in the second property (VA loan also)
- I've used up my VA loan limit
- I have $50k saved for a down payment
- I live in Las Vegas and don’t mind investing out of state
- Best advice for third property? 25% down conventional out of state? Move out to a primary residence on a third property?
- goal is not to sell the current two - they cash flow well
Thanks!
Refi #1 into a conventional. Yes, rates are higher BUT given you have a strong equity position, that should help mitigate that rate a touch. And it unlocks VA for #3.
Unfortunately I would be cash flow negative if I refinanced. Is that still your recommendation? I currently pay $1200/month. New mortgage would be $2300/mo.
Is the $1,100 difference from wrapping the heloc in and new conventional rate?
If you have that heloc with a balance, your not ready for the next one. You need to clear that acquisition $.
Sorry let me clarify:
The current mortgage is $1200
The heloc payment is $500
The new mortgage with a 6.5% conventional would probably be closer to $2300
I'm not sure what would be better - wrap the heloc into the rate or just pay it off from the cash out refi. - Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes3y
Quote from @Josh Edelman:
Quote from @James Hamling:
Quote from @Josh Edelman:
Quote from @James Hamling:
Quote from @Josh Edelman:
I want to buy my next investment. Looking for advice on way forward. Here is the skinny:
- I have one rental property (VA loan)
- took out a Heloc to buy my second property
- I live in the second property (VA loan also)
- I've used up my VA loan limit
- I have $50k saved for a down payment
- I live in Las Vegas and don’t mind investing out of state
- Best advice for third property? 25% down conventional out of state? Move out to a primary residence on a third property?
- goal is not to sell the current two - they cash flow well
Thanks!
Refi #1 into a conventional. Yes, rates are higher BUT given you have a strong equity position, that should help mitigate that rate a touch. And it unlocks VA for #3.
Unfortunately I would be cash flow negative if I refinanced. Is that still your recommendation? I currently pay $1200/month. New mortgage would be $2300/mo.
Is the $1,100 difference from wrapping the heloc in and new conventional rate?
If you have that heloc with a balance, your not ready for the next one. You need to clear that acquisition $.
Sorry let me clarify:
The current mortgage is $1200
The heloc payment is $500
The new mortgage with a 6.5% conventional would probably be closer to $2300
I'm not sure what would be better - wrap the heloc into the rate or just pay it off from the cash out refi.Ok Josh, understand what I am advising from has a basis in 2 different foundation points. The first is market cycles, the second is investor psychology.
I would say you need to pay-off that heloc, full-stop. Not interrelated to a purchase, just pay that off. Because think, that was your down payment on a property. You borrowed that down, so you must have that as priority #1 of paying for that down. A down is supposed to be cash in hand.
I get what your thinking, but this is not the market cycle for that. Your looking at using maximum leverage, and this is NOT the time for maximum leverage, it is time for being DE-leveraged.
And on the investor psychology side of things, you gotta keep in mind that down $, that's cash-in-hand. $ used to secure a property, and borrowing for it is "cheating". So, you need to feel a kind of anxiety associated with that, and a burning desire to get that paid and cleared ASAP.
When one thinks like this, it helps align the mind to keep a focus on proper production of property. It put's you in a mindset to keep driving at delivering cash-flow, in general.
We are in STAGFLATION tail-spin, with powers that be pressing for recession to prevent stagflation. Many bad things can result from such for the heavily leveraged person. My #2 money-maker in last tight economic cycle, was buying out failed investors. All of them had same story, the leveraged tight as a nats-azz, and then something happened, something they did not have a buffer to fall back upon, and next thing there deep in the red with no way to turn. Don't be that guy.
Todays market is about VERY smart acquisition, with ample margins, contingency funds, contingency for contingency.
I know your licking those chops at #3, but what's most important is to keep going vs pumping unit count to just loose it all, or any, right.
The #'s are clear, you gotta take a step back, clear that borrowed down $. Now your way better set to convert mortgages when do AND have a contingency fund when/if need in the interim.
Keep in mind, cash in hand is dyeing at about 8% right now (inflation). Paying off heloc removes that interest charge AND loss of $ via inflation. So if heloc is say 6%, that's a 14% saving your affecting. Because Real Estate moves with inflation, right, so $ in real estate is at net 0 to inflation. That's 0 vs -8. So paying off heloc should be viewed as a 14% ROI. That's smart $, is it not.
So take it in smart steps. Stop thinking about #3, think about stabilizing what you got, to be best set to jump on #3.
- Real Estate Agent · Las Vegas · Member since 2018 · 197 posts · 143 votes3y
Quote from @James Hamling:
Quote from @Josh Edelman:
Quote from @James Hamling:
Quote from @Josh Edelman:
Quote from @James Hamling:
Quote from @Josh Edelman:
I want to buy my next investment. Looking for advice on way forward. Here is the skinny:
- I have one rental property (VA loan)
- took out a Heloc to buy my second property
- I live in the second property (VA loan also)
- I've used up my VA loan limit
- I have $50k saved for a down payment
- I live in Las Vegas and don’t mind investing out of state
- Best advice for third property? 25% down conventional out of state? Move out to a primary residence on a third property?
- goal is not to sell the current two - they cash flow well
Thanks!
Refi #1 into a conventional. Yes, rates are higher BUT given you have a strong equity position, that should help mitigate that rate a touch. And it unlocks VA for #3.
Unfortunately I would be cash flow negative if I refinanced. Is that still your recommendation? I currently pay $1200/month. New mortgage would be $2300/mo.
Is the $1,100 difference from wrapping the heloc in and new conventional rate?
If you have that heloc with a balance, your not ready for the next one. You need to clear that acquisition $.
Sorry let me clarify:
The current mortgage is $1200
The heloc payment is $500
The new mortgage with a 6.5% conventional would probably be closer to $2300
I'm not sure what would be better - wrap the heloc into the rate or just pay it off from the cash out refi.Ok Josh, understand what I am advising from has a basis in 2 different foundation points. The first is market cycles, the second is investor psychology.
I would say you need to pay-off that heloc, full-stop. Not interrelated to a purchase, just pay that off. Because think, that was your down payment on a property. You borrowed that down, so you must have that as priority #1 of paying for that down. A down is supposed to be cash in hand.
I get what your thinking, but this is not the market cycle for that. Your looking at using maximum leverage, and this is NOT the time for maximum leverage, it is time for being DE-leveraged.
And on the investor psychology side of things, you gotta keep in mind that down $, that's cash-in-hand. $ used to secure a property, and borrowing for it is "cheating". So, you need to feel a kind of anxiety associated with that, and a burning desire to get that paid and cleared ASAP.
When one thinks like this, it helps align the mind to keep a focus on proper production of property. It put's you in a mindset to keep driving at delivering cash-flow, in general.
We are in STAGFLATION tail-spin, with powers that be pressing for recession to prevent stagflation. Many bad things can result from such for the heavily leveraged person. My #2 money-maker in last tight economic cycle, was buying out failed investors. All of them had same story, the leveraged tight as a nats-azz, and then something happened, something they did not have a buffer to fall back upon, and next thing there deep in the red with no way to turn. Don't be that guy.
Todays market is about VERY smart acquisition, with ample margins, contingency funds, contingency for contingency.
I know your licking those chops at #3, but what's most important is to keep going vs pumping unit count to just loose it all, or any, right.
The #'s are clear, you gotta take a step back, clear that borrowed down $. Now your way better set to convert mortgages when do AND have a contingency fund when/if need in the interim.
Keep in mind, cash in hand is dyeing at about 8% right now (inflation). Paying off heloc removes that interest charge AND loss of $ via inflation. So if heloc is say 6%, that's a 14% saving your affecting. Because Real Estate moves with inflation, right, so $ in real estate is at net 0 to inflation. That's 0 vs -8. So paying off heloc should be viewed as a 14% ROI. That's smart $, is it not.
So take it in smart steps. Stop thinking about #3, think about stabilizing what you got, to be best set to jump on #3.
James - this is fantastic feedback. Thank you for breaking this down. Just so I am clear, this is what I understand from your recommendation:
- Pay off the HELOC - use my cash on hand to do so
(I can't pay it in full but I can do it in chunks - do you have a recommendation?)
- If I pay off the HELOC right now with cash I have saved I would be at an overall loss since I would have used up all my cash plus what I have been earning from my rental property the past year.
Overall, clear the HELOC before trying to buy #3 correct? - Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes3y
Quote from @Josh Edelman:
Quote from @James Hamling:
Quote from @Josh Edelman:
Quote from @James Hamling:
Quote from @Josh Edelman:
Quote from @James Hamling:
Quote from @Josh Edelman:
I want to buy my next investment. Looking for advice on way forward. Here is the skinny:
- I have one rental property (VA loan)
- took out a Heloc to buy my second property
- I live in the second property (VA loan also)
- I've used up my VA loan limit
- I have $50k saved for a down payment
- I live in Las Vegas and don’t mind investing out of state
- Best advice for third property? 25% down conventional out of state? Move out to a primary residence on a third property?
- goal is not to sell the current two - they cash flow well
Thanks!
Refi #1 into a conventional. Yes, rates are higher BUT given you have a strong equity position, that should help mitigate that rate a touch. And it unlocks VA for #3.
Unfortunately I would be cash flow negative if I refinanced. Is that still your recommendation? I currently pay $1200/month. New mortgage would be $2300/mo.
Is the $1,100 difference from wrapping the heloc in and new conventional rate?
If you have that heloc with a balance, your not ready for the next one. You need to clear that acquisition $.
Sorry let me clarify:
The current mortgage is $1200
The heloc payment is $500
The new mortgage with a 6.5% conventional would probably be closer to $2300
I'm not sure what would be better - wrap the heloc into the rate or just pay it off from the cash out refi.Ok Josh, understand what I am advising from has a basis in 2 different foundation points. The first is market cycles, the second is investor psychology.
I would say you need to pay-off that heloc, full-stop. Not interrelated to a purchase, just pay that off. Because think, that was your down payment on a property. You borrowed that down, so you must have that as priority #1 of paying for that down. A down is supposed to be cash in hand.
I get what your thinking, but this is not the market cycle for that. Your looking at using maximum leverage, and this is NOT the time for maximum leverage, it is time for being DE-leveraged.
And on the investor psychology side of things, you gotta keep in mind that down $, that's cash-in-hand. $ used to secure a property, and borrowing for it is "cheating". So, you need to feel a kind of anxiety associated with that, and a burning desire to get that paid and cleared ASAP.
When one thinks like this, it helps align the mind to keep a focus on proper production of property. It put's you in a mindset to keep driving at delivering cash-flow, in general.
We are in STAGFLATION tail-spin, with powers that be pressing for recession to prevent stagflation. Many bad things can result from such for the heavily leveraged person. My #2 money-maker in last tight economic cycle, was buying out failed investors. All of them had same story, the leveraged tight as a nats-azz, and then something happened, something they did not have a buffer to fall back upon, and next thing there deep in the red with no way to turn. Don't be that guy.
Todays market is about VERY smart acquisition, with ample margins, contingency funds, contingency for contingency.
I know your licking those chops at #3, but what's most important is to keep going vs pumping unit count to just loose it all, or any, right.
The #'s are clear, you gotta take a step back, clear that borrowed down $. Now your way better set to convert mortgages when do AND have a contingency fund when/if need in the interim.
Keep in mind, cash in hand is dyeing at about 8% right now (inflation). Paying off heloc removes that interest charge AND loss of $ via inflation. So if heloc is say 6%, that's a 14% saving your affecting. Because Real Estate moves with inflation, right, so $ in real estate is at net 0 to inflation. That's 0 vs -8. So paying off heloc should be viewed as a 14% ROI. That's smart $, is it not.
So take it in smart steps. Stop thinking about #3, think about stabilizing what you got, to be best set to jump on #3.
James - this is fantastic feedback. Thank you for breaking this down. Just so I am clear, this is what I understand from your recommendation:
- Pay off the HELOC - use my cash on hand to do so
(I can't pay it in full but I can do it in chunks - do you have a recommendation?)
- If I pay off the HELOC right now with cash I have saved I would be at an overall loss since I would have used up all my cash plus what I have been earning from my rental property the past year.
Overall, clear the HELOC before trying to buy #3 correct?Yes, I am saying use that "parked $" that inflation is eating, to pay down/off that HELOC, with 1 exception, you do need to keep enough liquid $ for working capital, that's regular potential expenses in the short term. Because it's a HELOC, that means if need be you have ready access to pull $ if any big unforeseen expense happens, right, so working capital does not need to be a massive amount at this moment long as you have HELOC backup.
Look, you can't think of this as a "loss". Keep in mind what you did, was taking out a loan on future earnings, borrowed from your other property. If it were a bank vs your property loaning the $, you'd have no question on it right, you'd be all-about getting rid of that loan. You need to treat yourself with the same respect. Because it's an over-leverage position, we know that because if refi into a singular it would be WAY into the red, so we need to deleverage that property.
Maybe that's the most important mindset for this, think on how you took a loan on FUTURE earnings, so now, you need to pay off that loan taken.
I know it sucks exercising the additional patience but it will breed good things to come, you will be very happy for having done it going forward.
- Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes3y
Quote from @Josh Edelman:
Thanks Larry! I'd love to connect if you don't mind. I'm an agent in Vegas but I'd be all ears to hear about Rochester. Thanks again!Quote from @Larry Turowski:
@Josh Edelman congrats on your first two! I’m in Las Vegas right now and could tell you all about Rochester for your third!
I don’t care to gamble. Funny thing, I was just telling someone, why gamble when I can win 90% of the time with real estate? (And it’s really higher than that.)
Josh sorry I got busy here. Leaving now. If you dm me I’d be happy to have a phone conversation with you.
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