Pulling the trigger in 2017

10 Replies

I feel like I have spent an eternity reading, researching, listening to the BiggerPockets pod casts, etc...  In 2017 I would like to buy my next property and stop making excuses as to why I can't.

I would like to buy-and-hold.

I currently have a 2/2 1/2 town home in Virginia Beach.  I have $99,363 left on the mortgage with an interest rate of 3.375%.  My monthly payment including insurance and taxes is $695.  Similar properties are selling between $200K and $210K.  I rent the place out for $1,250/month with $125 management fee.  

I also have my primary home that I just built two years ago but would like to leave that out of the equation.

My question is about the best way to acquire the money to start investing.

Currently Navy Federal offers the following equity options:

Fixed-Rate Equity Loan

  • 0.25% rate discount with automatic payments
  • Closing cost credits
  • Repayment term up to 20 years
  • Borrow up to 100% of the property value

Interest-Only Fixed-Rate Equity Loan

  • 0.25% rate discount with automatic payments
  • Closing cost credits
  • 20-year term
  • Borrow up to 80% of the property value
  • Fixed rate for the life of the loan

Home Equity Line of Credit

  • 0.25% rate discount with automatic payments
  • Closing cost credits
  • Credit line remains open for 20 years
  • Borrow up to 95% of the property value

Interest-Only Home Equity Line of Credit

  • 0.25% rate discount with automatic payments
  • Closing cost credits
  • Credit line remains open for 20 years
  • Borrow up to 80% of the property value

For all of you seasoned investors out there, what method would you go with and why?

Thanks,

Mike

Line of credits are better in my opinion since you can keep using it as you pay it off and don't need to keep re-applying (basically a credit card).  A loan is more one and done...

@Michael Abernathy

I would agree with Doug on that, lines of credit would offer you more flexibility and you have it readily available when you need it. I have it and have used it often.

I am going to meet with the bank next week and look at the numbers.

Ideally I don't wan't to barrow more than what my cash flow on my rental can cover if possible.  (Monthly payment not to exceed $600)

My current financial situation allows me to set aside about a thousand dollars/month so I have some flexibility.

My next obstacle is getting my wife on board.  She is very conservative with our finances.  She prefers the 401K, mutual funds, etc... 

I would sell the town home as it is not a good income investment property. With values in the $200 K range your market rents are far to low to produce any positive cash flow..

Sell and reinvest the money in multiple better properties.... 

Even if he's putting aside 15% for vac/capex/repairs he's still cashflowing almost $200 bucks a month, that's a pretty solid investment especially with the interest rate IMO. @Thomas S. However, with properties selling that high over what he owes it might be time to consider selling that bad boy and bringing the cash back to Jax for a property or 2 or 10. 

I grew up in Jax myself, best of luck!

Greg.

Forgive my ignorance but what makes it not a good investment property?

It currently rents out for $1,250/month.  My note on it is $695 (that includes taxes and ins.)

The comps for rent in that area are closer to $1,350/month but I have had this tenant in there for three years and she has been amazing.  

Again I'm still new at this but when I run the numbers:

Rent + $1,250

Mort - $695

5% Vacancy - $62.50

5% Repairs - $62.50

Management fee - $125.00

Remaining $305.00

But if I run the CoC numbers using 120K purchase price + 2K VA fee it only looks to be around 3%.

Is it harder or easier to sell a property with a tenant in it.

I would think that it would only attract investors that are not looking to pay market value.

@Michael Abernathy ,

What about property taxes and insurance? Unless that is already in your mortgage number, that will eat significantly into your cash flow. I agree with the other posters, that the equity in the townhome would generate more cash flow in rental(s) that provide more rental income relative to the property value. You should be able to generate a significantly higher COC return.

Tom, 

I mentioned above that taxes and insurance are included in the mortgage.

I believe what you're saying is pull out the equity and invest in more properties.  Which is what my plan is.  I was just asking originally about the best way to go about that using the rates and methods I listed.

I think HELOC sounds like the best option. It allows me to have a ready access to cash when I need it without paying anything until I use it.

Thanks for you comment.

Mike

You might be able to get a HELOC on your investment or primary and then use that as 20% down on another investment property but I would probably just save up the 20% for an REO or off market property with a good amount of instant equity. If it's 50k then 20% is only 10k and you can get the seller to pay some closing costs. With any luck the property will appraise for 100k or more with a little work depending on the market and the deal.

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