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
- 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:
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.
James - last question before I commit to this and send money in today:
- My initial plan was to use my saved up money for down payment on my next property and therefore rent out the house I move out of- You suggest pay off the HELOC first before getting that third property
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:
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.
James - last question before I commit to this and send money in today:
- My initial plan was to use my saved up money for down payment on my next property and therefore rent out the house I move out of- You suggest pay off the HELOC first before getting that third property
Correct?Correct.
Again, remember, you didn't have the down for the most recent property purchase, you borrowed for that, so now that property is way over leveraged. It's very important to NOT move forward until what you have, is stable. As you pointed out, it's deep-deep in the red. So, you need to clear that borrowed down, to get stabilized.
Picture this, say you said F-it, it's all about just getting more. Now the next one is going to be probably a DSCR, because your running in the red on previous so that's not a great look for conventional. Now interest rate is going to be very high, your going to have to use ever liquid penny to get it to approval to close, and at end of day it's most likely to have little to no cash-flow.
So what you have then is 3 properties, and near to 0 cash-flow with all but 0 contingency funds. That's 3 properties that can have a roof issue, plumbing issue, HVAC issues. That's 2 properties that can have vacancy issues, tenant damage, etc.. And you have nothing to fall back on for unforeseen.
Everything has to go right, for many many months, or else things can get very very ugly in the blink of an eye. And then your coming to someone like me, needing the cash infusion to survive, and I and others like me are not a charity, it will cost, dearly, that's just the reality of it.
Or, you clear this HELOC, get the leverage into a healthy zone before growing. Growing when it's healthy growth.
- 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:
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.
James - last question before I commit to this and send money in today:
- My initial plan was to use my saved up money for down payment on my next property and therefore rent out the house I move out of- You suggest pay off the HELOC first before getting that third property
Correct?Correct.
Again, remember, you didn't have the down for the most recent property purchase, you borrowed for that, so now that property is way over leveraged. It's very important to NOT move forward until what you have, is stable. As you pointed out, it's deep-deep in the red. So, you need to clear that borrowed down, to get stabilized.
Picture this, say you said F-it, it's all about just getting more. Now the next one is going to be probably a DSCR, because your running in the red on previous so that's not a great look for conventional. Now interest rate is going to be very high, your going to have to use ever liquid penny to get it to approval to close, and at end of day it's most likely to have little to no cash-flow.
So what you have then is 3 properties, and near to 0 cash-flow with all but 0 contingency funds. That's 3 properties that can have a roof issue, plumbing issue, HVAC issues. That's 2 properties that can have vacancy issues, tenant damage, etc.. And you have nothing to fall back on for unforeseen.
Everything has to go right, for many many months, or else things can get very very ugly in the blink of an eye. And then your coming to someone like me, needing the cash infusion to survive, and I and others like me are not a charity, it will cost, dearly, that's just the reality of it.
Or, you clear this HELOC, get the leverage into a healthy zone before growing. Growing when it's healthy growth.
Thank you James. I regret not using the money I had liquid at the time for more of the down payment and less of the HELOC. Live and learn I guess. I will start paying this off. Thank you.
- Insurance Agent · Las Vegas, NV · Member since 2019 · 158 posts · 80 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!
If you want to stay in Vegas maybe try making your offers with the seller carrying a 2nd on the property and use a conventional or DSCR loan.
- Member since 2023 · 1 post · 1 vote3y
Hello @Josh Edelman,
Some thoughts on where to invest.
Your financial goals will dictate the best course of action. You can either aim for a higher initial return or prioritize high appreciation and rent growth. However, it's important to note that you cannot achieve both simultaneously. See the image below.
- Higher-priced locations - High housing prices are the result of years of high demand. Where demand for housing is high, rents also increase. Depending on the location and target tenant segment, rents and prices will keep pace with inflation. If rents keep pace with inflation, you can permanently get off the treadmill.
- Lower-priced locations - Low housing prices are the result of limited demand over a prolonged period. When demand is limited, there is little appreciation or rent growth, so rents will not keep pace with inflation. Eventually, you will be forced back unto the treadmill. The only question is how soon this will happen.
If your goal is a high initial return, and are not concerned with rents keeping pace with inflation, buy in a declining location. Some declining location indicators:
- State or city population static or falling
- Low property prices
- Limited increases in prices and rents
- High unemployment rate
- High crime - On Neighborhood Scout’s list of the 100 most dangerous US cities.
- Economic downturn
If your goal is a passive income you will not outlive, keeps pace with inflation, and is reliable, buy in a growing city. Some growing location indicators:
- State and city populations growing
- Higher property prices
- Increasing prices and rents.
- Low crime rate
- Economic prosperity
If your goal is to get off and stay off the treadmill, Las Vegas is one of the best locations in the country. Although appreciation and rent growth have slowed due to high-interest rates, this is only temporary. I recommend that you continue to invest in Las Vegas. However, you need to carefully select properties that match the housing requirements of renters who stay for many years, pay their rent on time, and take good care of the property. If you want details on how to do this, reach out.
- Real Estate Agent · Las Vegas · Member since 2018 · 197 posts · 143 votes3y
Thank you @Anne Gatus. That is exactly what I am doing. I am tracking everything you said but you summed it all up very well.
@James Hamling Update for you - I have been aggressively paying down the HELOC. From $70K balance, I am down to $40k. I am on track to be at $30k by the start of August. Thanks again for the help. Hoping to clear this all out soon.
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