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For analytical types who like helping newbies reach goals...

Betty Cruz
San Antonio, TX · Member since 2016 · 240 posts · 163 votes

Here's a hypothetical scenario... :-)

I am not experienced enough nor numbers smart enough to figure this out with confidence but I am devising a plan and would be very grateful for input from some of you who are so brilliant at figuring out what I call real estate puzzles. I have read hundreds of posts and it always seems like the people with really great answers still ask for more info from the poster so I will try to write down as many details as I can think - sorry for the lengthy post...as the subject line reads, this is for analytical types.

1. GOAL - to have at least $1200 passive income and a place to live that is paid for by renters. I want to be able to achieve this within 2 years and sustain it for 10-12 years after that. Basically, I am trying to find gap funding for a pseudo-retired life as I wait to be able to tap into my 401k retirement savings. 

2. Current situation. I have a day job and I'm completely debt free except for my personal home. I have sufficient savings/credit and pre-approval for down payment on up to $200,000 worth of rental property. Additionally, I have $200,000 equity on my current residence that I will definitely sell within 18-22 months. It is way too much house and I'm just waiting till I'm an empty-nester to dump it. I don't think it is a desirable house to rent out because it has high HOA fees and a swimming pool (which I don't wish to maintain).

3. My idea. I have tossed around many ideas and am open to any other options, but this is my working plan...

a. Purchase a rental now (or as soon as I can find something good, which seems difficult) and set it up to cashflow at least $300/mo. This would get me started, get me learning how to be a landlord and get me building up some equity as I'm not a huge fan of a lot of debt.

b. After selling my personal home in about 18-22 months, use the cash ($200,000 equity) to buy a duplex or multifamily that I can house hack. I'm thinking that with no or very low mortgage, I could easily live in this for "free." This also gives me the flexibility to live elsewhere if I want (I'm thinking out of state/out of country, etc).

As I analyze deal after deal, I feel the combination of rental property earnings from one leveraged property and one non-leveraged property could give me the desired passive income. What am I not thinking of? What would be a better plan? Any help would be much appreciated!

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Wendell De Guzman
Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
9y
Originally posted by @Betty Cruz:

Here's a hypothetical scenario... :-)

I am not experienced enough nor numbers smart enough to figure this out with confidence but I am devising a plan and would be very grateful for input from some of you who are so brilliant at figuring out what I call real estate puzzles. I have read hundreds of posts and it always seems like the people with really great answers still ask for more info from the poster so I will try to write down as many details as I can think - sorry for the lengthy post...as the subject line reads, this is for analytical types.

1. GOAL - to have at least $1200 passive income and a place to live that is paid for by renters. I want to be able to achieve this within 2 years and sustain it for 10-12 years after that. Basically, I am trying to find gap funding for a pseudo-retired life as I wait to be able to tap into my 401k retirement savings. 

2. Current situation. I have a day job and I'm completely debt free except for my personal home. I have sufficient savings/credit and pre-approval for down payment on up to $200,000 worth of rental property. Additionally, I have $200,000 equity on my current residence that I will definitely sell within 18-22 months. It is way too much house and I'm just waiting till I'm an empty-nester to dump it. I don't think it is a desirable house to rent out because it has high HOA fees and a swimming pool (which I don't wish to maintain).

3. My idea. I have tossed around many ideas and am open to any other options, but this is my working plan...

a. Purchase a rental now (or as soon as I can find something good, which seems difficult) and set it up to cashflow at least $300/mo. This would get me started, get me learning how to be a landlord and get me building up some equity as I'm not a huge fan of a lot of debt.

b. After selling my personal home in about 18-22 months, use the cash ($200,000 equity) to buy a duplex or multifamily that I can house hack. I'm thinking that with no or very low mortgage, I could easily live in this for "free." This also gives me the flexibility to live elsewhere if I want (I'm thinking out of state/out of country, etc).

As I analyze deal after deal, I feel the combination of rental property earnings from one leveraged property and one non-leveraged property could give me the desired passive income. What am I not thinking of? What would be a better plan? Any help would be much appreciated!

 Betty,

You can "house hack" by buying a 4-unit - live in one of the units rent-free because you have the three tenants paying for your mortgage. Then, when you sell and cash out $200,000 from your current house, you can then do private lending with it (you can lend it to other real estate investors). It can earn 12% p.a. or 1% per month - generating an income of $2,000/month.

For the meantime or until you sell your current residence, you can rent it via Air BnB to generate even more rental income.

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  • John Leavelle
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    9y

    Hello @Betty Cruz, like @Jordan Moorhead I think of debt as good and bad (good investor debt / bad consumer debt) similar to cholesterol (good and bad).  You can develop a plan to control the amount of debt you are comfortable with.  For example:

    Start with a 4-plex that Cash Flows minimum of $150 per door ($600 per month)

    After you sell your current home you could purchase 4 additional 4-plex's with same Cash Flow ($600 x 5 = $3,000 per month).  Hold them for 10 - 12 years or trade up to small apartment.  Of course you can house hack anyone of these.  And you can pay down the loans that you feel you need to.

    You might want to start attending the local REI meet-up group in San Antonio. There are several BP members that go. They might be able to help you find the property you are looking for.

    Hope this helps. :)

    2Reply
  • Amy A.
    Portland, ME · Member since 2012 · 616 posts · 550 votes
    9y

    Debt is good when used as a lever, bad when used as a crutch ;)

    2Reply
  • Tim Jones
    Flipper/Rehabber · Merced, CA · Member since 2016 · 221 posts · 115 votes
    9y

    @Betty Cruz,

    So many good things already written....I really do love BP!

    One additional thing you can do to strengthen your position is to get a HELOC on your personal residence. They're cheap and really flexible. This can put you in a better position as a buyer and you can repay it upon the sale of your home.

    Best of luck to you!

    TJ

    1Reply
  • Betty Cruz
    OP
    San Antonio, TX · Member since 2016 · 240 posts · 163 votes
    9y

    @Tim Jones Than you Tim! That is actually one thing I am doing already. It sure feels good to know I am actually already doing something that before I knew nothing about. Thank you for the affirmation. Additionally I am in the process of preapproval for a loan with my bank but they tell me they only give 15 year max loans on rentals. Is this typical? Where should i go for a 30 year loan?

    0Reply
  • Betty Cruz
    OP
    San Antonio, TX · Member since 2016 · 240 posts · 163 votes
    9y

    Thank you @John Leavelle. I see you are in my area. Have you been able to find properties with that kind of cash flow? I continue to search. I have attended one of the meetings Rick Pozos (so?) organizes. No meet ups yet but I will investigate. 

    0Reply
  • Tim Jones
    Flipper/Rehabber · Merced, CA · Member since 2016 · 221 posts · 115 votes
    9y

    @Betty Cruz

    Primelending will do a 30yr 1-4 unit residential investment loan. So will Quicken Loans.

    TJ

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    9y

    Amy, not lend on anything you wouldn't want to own? That pretty much says you don't understand lending, as a lender you're not ever moving in, you foreclose, if it doesn't sell, then you take it and sell it, you're a note holder not a buyer. 

    Finance is not real estate, I'm sure Betty will be fine in RE, but it will take time, effort and more experience before diving in as a lender. :)

    0Reply
  • John Leavelle
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    9y

    @Betty Cruz

    There  is a Meetup group, "SAN Antonio Real Estate Investors Discussion Group " that meets the first Tuesday of the month at 6:00 pm (I think).  Next one should be 6 December.  It is ran by two BP members @Chad Claton and @Seth Teel.  I have not attended in a while because of my work schedule.  Hope to be able to soon.

    As far as finding the Cash Flowing properties.  Yes, I find them but some have been out my current price range or my offers were not accepted.  Some turn out to have more issues than I want to deal with.  It also depends on what areas you are interested in.  And how much Rehab you are willing to accept.

    You really need to develop a plan identifying specific criteria for your investing strategy.  It will help you reach your goals.  There are plenty of blogs and Podcasts on this website to help you develop a plan.

    Try to attend the meetup. Everyone  is very friendly and will help you if you ask.  :)

    1Reply
  • Betty Cruz
    OP
    San Antonio, TX · Member since 2016 · 240 posts · 163 votes
    9y

    Thank you @John Leavelle . I will plan to attend this discussion group you mentioned. Any idea how I find out where it is?

    0Reply
  • John Leavelle
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    9y

    Rand Building (downtown), 131 Soledad st. 

    Go to the "Meetup.com" website and find/join the group.  

    1Reply
  • Betty Cruz
    OP
    San Antonio, TX · Member since 2016 · 240 posts · 163 votes
    9y

    I wanted to update you all who were so kind to help me out about a month ago. I have found a great off market opportunity today and now need to figure out the best way to finance it with my partner. We have agreed to take it on 50/50. I don't know if that makes a difference to banks. I plan to call tomorrow to find out. It needs to close by the end of the month.

    Details - $45,000. Already has a renter with a two year lease at $900/mo. They want to stay. It can be fixed up for about $25,000 and then sold for $100,000. We want it as a rental property at least for a while since the renters are already in place.

    Options for my half of the financing:

    1. HELOC - it's ready to go and already closed

    2. Traditional loan for a rental property (requires 20 percent down but already pre-approved)

    3. Cash. I have the cash to just write a check for my half of the total cost.

    My partner wants to pay his half with his solo 401K. 

    Any advice or insight would be appreciated. thank you!

    0Reply
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