Hello all! Quick question for the masses as it relates to starting out in the business. I have limited cash available so my thought process is to get a HELOC or 2nd mortgage on my primary residence for the purpose of generating available cash to invest. I'm interested primarily in buy/hold investments to start out, most likely out of state turnkeys due to the current market in Denver. I have plenty of equity (about 100k) available to use that is currently not working for me at all.
I'd love to hear your thoughts on the plusses/minuses of going this route to start building up a rental portfolio. I'm interested in fix/flips as well but that would only be to generate more cash for buy/holds. Passive income is definitely the end goal. Thanks all for your help!
Have you considered being the funding for some flips to build that equity up for when the market is a little more in your favor here? There are always people looking for funding and someone with a good reputation for flipping could be a great partner to start out.
Also there's some great heloc options around here right now so dig a bit. If you want to max out the potential of it I would wait a few months while the summer gives a good jolt to your value.
I know there are a lot of people here on BP that love turnkey rentals - typically out of state. I don't think is a great play for guy borrowing against his house to purchase without any other rental experience. I have to admit I personally do not have any experience in turnkey properties, but have witnesses multiple people get burned. I have done out of state flips and that was enough hassle. Of course you won't get the bad tenant, PM that goes under or house that won't rent - all things that can happen just as easy in your back yard, but easier to handle.
Curious to see what others say.
@Dan Mackin I have considered that approach as well. I agree that partnering up with a reputable, experienced flipper could be a great way to go. The question of course is how to identify that person. I guess the obvious answer is by asking around here on BP and through other connections. That's a good suggestion to wait it out a bit longer through the summer as well to get that jolt in value. I will definitely have to do a lot of research into my HELOC options. So I guess my question is, while my HELOC cash is loaned out, do I have the flipper make monthly payments me to cover my payments or just cover them myself until payout at the end of the flip?
@Travis Sperr I can definitely see your point as it relates to turnkeys. There would definitely be some risk there and maybe it's not the best way to go for a new investor. But if I can't identify a good cash flowing property here, then I see that as the next best option really. Otherwise, how can I start building up a rental portfolio? Like you said though, very easy to get burned in such a scenario as well.
We are funding a lot of deals in this market- although $100k is a fair sum of money - it isn't going to get you a 1st position note on a rehab property in the Denver metro.
There are still good deals in the Denver Metro area - they are more difficult to find but they are out there. I am still seeing decent cash flow properties - of course not no money down. Too often as investors we get into this mindset that we need to buy 17 properties tomorrow. If you slow down a little bit and look for discounted properties that need a little bit of work for rental and buy one a year or one every other year until you are 40, 50, 60 will you retire well? Rental properties are great to own because they typically pay for themselves and appreciate over time. In Denver the average appreciation over 40 years is about 6% - I am not sure you are going to get that in the Midwest. I don't buy on appreciation in the short term, but I plan to own all of my units forever.
I don't follow turnkey deals - what annual return would you expect on a $100k investment?
Andrew, make sure you research who you get your equity line from. Most banks adhere by the "Delayed financing guidelines". That is (as far as I know) they make you wait 6 mo.s to a year before you can cash out your equity line & refi your new rental. I just talked to one who got a little testy when I told her I wanted to use my HELOC to purchase property. Question to those with this experience: should you just keep your mouth shut about what you want to do with your HELOC?
@Andrew Johnson - Your payment agreement is up to you if you go that route. I personally would just make the payments, but it also depends on your comfort level. As for options check around. I got a 90% ltv on my primary with a base rate of 3.75%. For the amount I wanted it cost me nothing other than the small credit hit.
@Jeff Caravalho - Most people get their HELOC for projects or an emergency fund. I said the second. I wasn't lying about it, but just have other potential plans if I want to go that route. The credit union i used lets me use all the funds from day 1. Some banks may have different rules.
Ah, the exuberance when thinking that 100K of equity will get close to a 100K LOC; read links to see how to calculate how much the line would actually be;
@Travis Sperr Good advice. It is all about the long haul for me. I am in no hurry to buy a bunch of properties just to say I did so. However, I am pushing 40, so unfortunately I'm late to the game as well. I wish I would have woke up and got involved 10 years ago but that's in the past. I need to maximize my efforts now, but not rush into anything either. I definitely plan to keep an eye on the Denver market to see if an opportunity comes up that makes sense for me.
@Jeff Caravalho I will definitely do my research on the loan options available. Thanks for the info.
@Dan Mackin Great information. Thanks! I have shopping to do for sure.
@Steve Babiak I didn't mean to insinuate that I would get a 100k loan. Not at all. Thanks for the links.
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