Browns Mills, NJ · Member since 2016 · 9 posts · 1 vote
Hi All,
I have always wanted to get into real estate investing but I feel i made a BIG mistake when i purchased my first home!
I have a home (my first purchase) in a small rural town in southern new jersey that I purchased 5 years ago for $134,000. My interest rate is %3.14 on my mortgage - (I know its really low - I lucked out big time! )
In the last five years a very small amount has gone towards my principal and most has gone to interest so there is hardly any equity in the house yet to use towards the purchase of another property.
But I really want to know how could I leverage my asset (my 1 family house - 3 bedroom , 1 bath with deck and fenced in back yard) to purchase a fourplex investment property?
I also want to know if it will be easier to purchase a fourplex as a live in owner or is it not necessary since i am not a first time home buyer anymore?
You may be over-looking the biggest asset you have-- YOU! There are many other funding opportunities available other than tapping into your home's equity. Matter of fact, I wouldn't even consider that at this point.
I've slowly built up my buy-and-hold properties and flips using very little of my own money and instead using the bank's money. A couple of suggestions:
1) Read the ba-jillon posts on creative funding sources and Brandon Turner's book on investing with low or no money down.
2) If you have good credit and a low debt-to-income ratio, I'd strongly recommend applying for a Personal Line of Credit (PLOC). This is not a Home Equity Line of Credit (HELOC), a PLOC is essentially an open line of credit that you can use to purchase/rehab properties. That's the core of my strategy. I have two PLOCs. I use one to buy the property (typically foreclosures) and the other to renovate. After rehab is complete and six months has elapsed, I'll do a cash-out refi and then pay off the PLOCs. If I've done the purchase and rehab right, I should get all (or nearly all) the money I've invested back. At that point, I now own a property that I've paid almost nothing out of pocket for and I'll be earning a steady net cash flow for years to come. It's the BRRRR strategy using a PLOC. On my last BRRRR, I purchased a foreclosure for $65K, did a $22K renovation for a total investment of $87K. The house appraised for $110K and, at a 75% cash-out refi, I got 75% of $110K or $82,500 back. I paid off the PLOCs, but was short $4,500-- so that came out of my pocket. So it wasn't a perfect BRRRR, but it was close. BUT, for my $4,500, I created $23,000 worth of equity and earn about $6,000 per year in net cash flow. Not a bad return for $4,500. Can't do that in the stock market!
You may be over-looking the biggest asset you have-- YOU! There are many other funding opportunities available other than tapping into your home's equity. Matter of fact, I wouldn't even consider that at this point.
I've slowly built up my buy-and-hold properties and flips using very little of my own money and instead using the bank's money. A couple of suggestions:
1) Read the ba-jillon posts on creative funding sources and Brandon Turner's book on investing with low or no money down.
2) If you have good credit and a low debt-to-income ratio, I'd strongly recommend applying for a Personal Line of Credit (PLOC). This is not a Home Equity Line of Credit (HELOC), a PLOC is essentially an open line of credit that you can use to purchase/rehab properties. That's the core of my strategy. I have two PLOCs. I use one to buy the property (typically foreclosures) and the other to renovate. After rehab is complete and six months has elapsed, I'll do a cash-out refi and then pay off the PLOCs. If I've done the purchase and rehab right, I should get all (or nearly all) the money I've invested back. At that point, I now own a property that I've paid almost nothing out of pocket for and I'll be earning a steady net cash flow for years to come. It's the BRRRR strategy using a PLOC. On my last BRRRR, I purchased a foreclosure for $65K, did a $22K renovation for a total investment of $87K. The house appraised for $110K and, at a 75% cash-out refi, I got 75% of $110K or $82,500 back. I paid off the PLOCs, but was short $4,500-- so that came out of my pocket. So it wasn't a perfect BRRRR, but it was close. BUT, for my $4,500, I created $23,000 worth of equity and earn about $6,000 per year in net cash flow. Not a bad return for $4,500. Can't do that in the stock market!
unfortunately i already have a personal line of credit taken out so this would not be an option for me. Any other ideas?
I was thinking of renting my home which could potentially give me about 400 a month in income and then i would purchase a fourplex and live in one of the units.
Hey @Dan Smith when you cite $400/month in cash flow, make sure you are not just taking Rents- PITI to get to that number. You still will have maintenance, vacancy, capex, and other expenses.
You didn't really say what your financial situation is like, but yes, theoretically you could purchase a 4 plex to live in 1 and rent out the other units. You may only need 5% down to do so, but you should definitely talk to a mortgage broker about what that would look like.
If you have a spare room you could rent it out for some cash flow to put towards your next investment. Congratulations for wanting to pursue this course.