I have one property, what next?

Question

Hi Guys,

I am very new here, I am a 29yo Aussie living in Australia. I currently have one house in Lexington, KY, valued at around $45-50k and I think it can be rented out at about $120-$150pw. I own the property outright (no mortgage on it).

Real estate in Australia is simply unaffordable at the moment with homes costing upwards of $500k to get started. So, I would like to build a bit of a property portfolio and try an make a passive income from real estate in the US. How do I use the equity in the home I own out right to start? What strategies should I use? Can anyone help??

Kane :)

Bryan Reid · Answer

Account Closed

Lindsay Stewart · Answer

Hi Account Closed

You have some fantastic advice coming through in this thread!  From my experiences as a fellow Aussie investor, I have found it considerably easier to access finance here in AU through LOC or unsecured lending, investors etc rather than trying to get HELOC on low value properties.  I have often accessed some short term hard money for closes etc, but would not recommend this to purchase other properties as the interest is too high and terms are too short.

I did investigate once the option of a HELOC on a property I had in Birmingham MI, but the appraised value of that property was just north of $200k.  Was still a difficult process and chose at the time not to continue with that strategy.

Loving your thinking though!  Best of luck, and yeah definitely keep us posted!!

Cheers

Lindsay

James Wilcox · Answer

Account Closed I suggest you get a better idea of the type of property you are dealing with. It seems you are not sure on what it is worth and that makes a difference in how you may want to approach getting funds to fix it up.

Unfortunately, you have already missed the cut off date for a reassessment of value for your taxes. You could try to call the PVA office and push for one, but I highly doubt that will happen. You will probably have to wait till Early 2018. Worth a conversation though and you will need a good argument as to why you think your value is too high.

A HELOC is just access to equity that you have in a property. You can use that for repairs or a new car. It is totally up to you what you do with the money. It is just kind of like a savings account that you pay interest on if you pull money out but is backed by the property. Most lenders are not going to want to do a HELOC, as Bryan said, on such a lower priced property. Normally the cut off is around 50K. Not saying someone may not do it, just that it is going to be very difficult to find someone that will. Now that you are talking about that low of a valued home (35K) then probably just a regular unsecured line of credit may be a good option. That is if your repairs are just $5K. I am doubtful that is the case though, just based on what you are saying. Also, you are going to need reserves for repairs that you can not plan on. Usually, lower priced properties take a lot of maintenance and repairs. That is why you will need a great PM company to keep a good eye on it.

If you wish to pursue financing on a HELOC. I suggest asking a smaller local bank or a credit union. Not being a US resident is going to add even more complications. IDK banks policies but someone local is probably your best bet. However, I would wager you need to just call everyone possible. Here is a list to start though.Traditional BankPark Community Credit UnionBank of the BluegrassUK Credit Union

James Wilcox · Answer

Account Closed welcome to BP and REI community. First, what is the situation of the property? Is it not already rented out currently? Since you are on the other side of the globe, I am curious as to what the property situation is. If you are looking to rent per week, I would advise against it. You are an out of the country LL and you are going to need strong property management in your stead. Asking a PM company to handle weekly rent is going to be hard to find. Also, the headache you'll get from the type of tenants you are going to attract is not worth it. A year lease with monthly rent is pretty standard in KY.

As for how to access some of the equity you have in your property? I would suggest a HELOC or home equity line of credit. It gives you quick access to the cash when you need it. Rates are still good and you will likely have interest only payments during your draw period. You can also sometimes find places that are running specials with no closing costs, which will be less money out of your pocket to access the equity you have in your home. The downside is the rates are sometimes not fixed (although some can be) and your repayment period is likely shorter than a regular mortgage than a standard 30-year mortgage.

You may also want to consider a refinance, which is just like a standard mortgage. You may be able to lock in a fixed 30-year mortgage and repay that balance over a longer period.

This is a great question to ask your lender since they will help you find the best fit for you.

Good luck with all your future REI ventures!

Account Closed · Answer

Thanks guys. @Bryan Reid Thanks for raising your concerns. To be completely honest, the house was given to me as a gift by a friend. As far as I am aware the change in ownership has occurred and the deed lodged with the county. So to date I have invested $0 into this property. Hence why I am not too sure what to do with it. If it sits there, vacant, the taxes still need to be paid along with other costs. At least if it is rented out it is looking after itself.

Bryan Reid · Answer

OK - that actually makes me feel quite a bit better if it was a gift.

I was cringing inside, worried that perhaps you had fallen prey to a scammer that had 'flipped' you a pig-in-a-poke, or had just outright stolen your money.

It sounds like that isn't the case.

And it also sounds like you've got a great friend to give you a house as a gift!

Knowing that, it also kind of changes my advice a bit.  Trying to put myself in your shoes - ie: what would I do if a $35K-$50K house was given to me halfway around the world, there is no question what I would do.  I would find a real estate agent in that town and I would sell it, and then re-invest the proceeds in something easier to manage.

I've been investing and self-managing properties for nearly a decade now, and yet I would not feel at all prepared to manage a rental in Australia.  Even using an Australian PM.  Just too many headaches, and too many unknowns.  I know nothing about landlord-tenant law or real estate conditions in Australia...

Assuming you manage to make $35-$50K on the sale you have a lot of investment options.  (Not even just real estate, either, but since you're on this forum I'll assume you're looking for real estate options.)

Option 1: see if the funds you receive would be sufficient for a down payment on a local property.  You say Australia's market is very high, but if you can put down 10% or so and find something that cash flows locally, you're doing great.

Option 2: rather than a $35K SFR in Lexington (which is going to pretty much a management nightmare due to its value) maybe reinvest in something like a condo where the bulk of your management is built into the HOA fees.  You would still need to find either a PM or a rental agent who could handle tenants, but most of your maintenance and capex is taken care of.

For option 2, since its still real estate in the US, you could do a 1031 exchange which makes it even more attractive.

I'm very glad to hear you haven't just been scammed out of $50K.  As it turns out, it sounds like you're in the enviable position of having a blessing fall into your lap and trying to decide how best to use it.

Which brings up my last bit of advice on what I would do in your shoes:

This is by far the best Real Estate advice I've ever given...  I would take my friend out for a nice, thick steak at a restaurant of his choice!

Bryan Reid · Answer

@Jim Wilcox gave you good advice about the HELOC.  If you get a HELOC it gives you the flexibility to buy - or not - another property if/when you find one you like.

The one caveat I'll add, though, is that it isn't easy to find lenders who will use properties in that price range ($50K) as collateral.  You may be forced to use a non-traditional lender (ie: not a major bank).  For that matter, just the fact that you're not a US resident may present some headaches with a traditional bank.

As far as the $300-$350 / month rent, where did that figure come from?  That seems a tad low in Lexington, even for a $50K house, but may be accurate depending on where it is.  Do you mind disclosing the location?

Your first step will be to find a good property manager.  I don't believe there is a cadre of property managers seeking to specifically rip off Aussies, but it is always true that a good PM can be quite good while a bad PM can be... very, very awful.

Feel free to message me and I can give you the names of a few good local PMs.

James Wilcox · Answer

Account Closed cool good luck. Keep us posted. A pretty interesting scenario so hope it works in your favor. Good luck!

James Wilcox · Answer

Account Closed , and all of BP wants to see you succeed. No matter what path you choose we are here to help. Good luck and let me know if you need anything.

James Wilcox · Answer

@Bryan Reid brings up even more great points. I agree with him 100% and without more information, we can't say for sure on a lot of it. All the questions that he is asking are things you need to know the answer to. However, I see a lot of red flags as well and think you need to take some time to learn a little bit more about the property.

Account Closed I would take note that you have 2 individuals that are in your properties market that are both already having concerns about this situation. That is why I advise you get a second opinion and from those that have boots on the ground in the Lexington, KY market. Other PM companies in the area is a great place to start.

You need to buy income producing properties that can make you money and push you closer to financial freedom. Just because it is cheap, does not mean it is necessarily a good deal. My first REI deal wasn't the best and it was a tough road on that property. However, I learned a lot and would not have traded that first one for anything. This scenario may be the same, but I image it maybe even tougher considering you are the opposite side of the world. Just get intel, make a decision, and take action.

I have one property, what next?

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