What would you do in my situation?

Question

Hello out there!

I've lived in my primary residence in Reynoldsburg, OH since 2015, house is almost paid off (just a few grand left). Looking to put the equity (guessing at least $300K, we've replaced most everything in our house at this point) to work and get an actual investment property.

Since the start of the year, I've read a handful of BP books:
- Rental Property Investing (Brandon Turner)
- How to Invest in Real Estate (Brandon Turner/Josh Dorkin)
- Investing in Real Estate with No (and Low) Money Down (Brandon Turner)
- BRRRR (David Greene)
- Multifamily Millionaire Volume 1 (Brandon Turner/Brian Murray)
- Start with Strategy (Dave Meyer), currently reading

I was thinking of using the equity to BRRRR small multifamily properties and combine some concepts from both the BRRRR and Multifamily Millionaire books (specifically making cash offers via HELOC to secure distressed properties, ideally vacant to set market rents). I've got the capital and some knowledge, but not a lot of time. I'm working with some local brokers to find off market deals to aid in the time aspect.

My wife and I have an 18 month old and another joining us in a couple months. Ultimately, my goal is to not have my wife and I work a typical job until we're 65.

Does this strategy make sense? Is there something else I should be considering? I've heard multiple people on the podcast say to just jump in, but I want to make sure my idea is sound before making any moves.

Thanks in advance for your time and consideration.

Nathan Gesner · Answer

Borrowing the equity in your home is risky when rates are this high. If you borrow $100,000 and invest that in a property, you are paying the mortgage on the new property and the HELOC on the money borrowed. If your investment fails, it may impact your primary residence because of the money you borrowed against it.

My preference is that you increase earnings, reduce expenses, save up, and make each investment stand on its own.

Greg Scott · Answer

If you are just starting on your journey, it is best to start simple and then add complexity with experience.

What you say can be done, but multifamily is more complex than single family.  A distressed property is more complex than a stabilized one needing rehab and that is more complex than a property in good condition.  A vacant property is also more complex than an occupied one.

Catherine Loh · Answer

Hi @Jarod Forsha I love the live and flip strategy. I've done this 4 times and it has worked out great to build my rental portfolio. I live in a home for 2 years and fix it up while it's my primary residence.  Once I hit 2 years, I buy another home I can move into and add value. Then my prior residence becomes a rental.  This way I only put down 5% to buy my next home as it's a primary residence.  It definitely gets a little tricker with kids but it's worth it.  You could also buy a duplex, live in 1 side as your primary then you have a 2 unit rental in 2 years.  Let me know if you want me to dive more into these details.

Benjamin Aaker · Answer

I'm a fan of lines of credit. You can get a LOC on your primary residence for up to 80% of the equity you have in it. In your case, this would be 250k. That money is ready to go for when you find your investment. Buying a small or medium multifamily would then use only part of that LOC for the down payment. To do this, you need to make sure that your multifamily can cash flow to pay its primary mortgage and the LOC (a piece that many people fail to account for).

As a backup, you should also make sure that you have the extra income from your job(s) to pay the LOC and protect your house.

The safe route is to save up the money first, but investing does carry risk and everyone has a different level of risk tolerance. Discuss this with your wife before you decide.

Zac Mckenzie · Answer

Hi Jarod, your doing all the right things getting started. And yes at some point you just jump in and really start learning. Getting started I wouldn't avoid single family homes, there are more of them, they cost less comparatively, and as Greg stated they are just less complex. The most successful investors in my circle here in columbus have their portfolio built of primarily SFH. inlist quality brokers, agents, and wholesalers to fill your funnel and then team up with a great honest general contractor to help you understand the back end of the projects. The rest you will learn along the way.

Keyvan Moussavi · Answer

I agree with Greg and Zac.  SFH or even apartments are much easier to handle.  It doesn't have to be BRRRR either, you can start with small fix and flips by purchasing off markets off course and use this strategy to slowly grow your cash on hand.  This is a great way to learn about "construction", what it takes to make a property marketable (e.g., trades, remodeling, permits, taxes, settlement process, etc.).  You can supplement the funds that you're taking out of your home through additional funds from hard money.  Their interest rates will be higher and they collect origination fees so the purchase price of the property is key and determining your ARV.  Choose them wisely, I have heard horror stories of them not coming to the table at settlement...  Based on your assessment of the spread, if it makes sense, then jump in and make an offer but try to push the settlement date back as far as possible to give you enough time to come up with a detailed execution plan for turning the property back into market.  You will have to have an experienced team of contractors under your belt to assess the property and a good realtor who is a great marketer; don't just count on MLS.  Work with the realtor to minimize your listing costs but do incentivize them with commissions if they sell your property above a certain watermark above your listing price.  Hope this helps.

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