Long Beach, CA · Member since 2019 · 25 posts · 2 votes
I'm obviously a super newbie, just thinking through options to get started. My husband and I have a ton of equity in our home that could be a line of credit towards upgrades, however wondering about putting it towards a first investment property instead. Is that a terrible idea??
Rental Property Investor · Toronto · Member since 2018 · 126 posts · 106 votes
7y
So basically what I did was refinance my personal house and I didn't know any better so I bought a single family home in a smaller town for cash.i didn't qualify for a second mortgage . I built a legal duplex and rented it out. With the left over money, I put a 20% dp on house number 3. I learned not to buy houses with cash from other investors I had recently met. Then with my job and 2 rented rental properties, I refinanced house number 2 and took 80% of the value out. Then I used that money for deposits to buy 2 condos and another house. And I just repeated that over and over. But as I met other more experienced investors, I sold my condos to buy cash flowing houses.
I have done things differently than others here. Made a few mistakes along the way. I was able to quit my job after a few houses. I never took the cash flow from my rentals, I instead use the money to pay for my personal house and all its expences so I live for free. I also had to quit my job because I bought 3 houses one summer and I couldn't renovate them and have a day job at the same time. It was alot of work, but as every year goes by it gets easier.
Rental Property Investor · San Francisco, CA · Member since 2016 · 2 posts · 1 vote
7y
i think it's a great idea (as the downpayment has to come from somewhere and this way I would argue you have large degree of control of the terms) - as long as the numbers work and the rental cash flows nicely. this way you'll have renters building up your equity over time and chances are, also some appreciation eventually...
Investor · United States · Member since 2018 · 565 posts · 356 votes
7y
@Amber Tippett
This will come down to you and your husbands level of risk tolerance. If you guys are 100% committed to becoming investors then it may be the right thing for you to do in order to get started.
@Amber Tippett I personally love this idea! If you can take some of that “earned” capital and scale the investment you’re on your way to building that times over (if that is part of your plan). Of course, your own risk tolerance is imports to check and having proper “catastrophic” reserves along with a good analysis of “conservative cash on cash” returns on the property you acquire will help guide you!
Rental Property Investor · Toronto · Member since 2018 · 126 posts · 106 votes
7y
Hi. My wife and I took the equity from our personal house to buy our first rental. That is how most people I know got started. I don't know anyone who actually saved 100k$ by themselves. One thing to be aware of, is that you will have a larger personal mortgage and your rental is technically purchased with 100% borrowed money. So even though your calculations show a positive cash flow, there really isnt any cashflow because you have to pay the difference of your personal mortgage. So just make sure you have some money saved away for repairs or for vacancies
Long Beach, CA · Member since 2019 · 25 posts · 2 votes
7y
@David Steinbok Thanks for sharing your experience. Our current mortgage is pretty awesome, especially in our area of SoCal. We’re focused on knocking down our other payments hard this year. How did you and your wife fare on your first investment property using your equity and what were your next moves?
Rental Property Investor · St. Louis, MO · Member since 2018 · 26 posts · 17 votes
7y
@Amber Tippett, I’m buying my second property, by the end of the month. The first was on accident and it’s been 9 years ago that I purchased it. Here is why I’ll be buying my second and third this year with a goal of 50 units over the next 7years, I read a lot of books, study the financials, and put in some guidelines. Point being, just make sure you know what you’re doing (read, study, implement) and you’ll be a rockstar. The home equity will only be he start.
Rental Property Investor · Toronto · Member since 2018 · 126 posts · 106 votes
7y
So basically what I did was refinance my personal house and I didn't know any better so I bought a single family home in a smaller town for cash.i didn't qualify for a second mortgage . I built a legal duplex and rented it out. With the left over money, I put a 20% dp on house number 3. I learned not to buy houses with cash from other investors I had recently met. Then with my job and 2 rented rental properties, I refinanced house number 2 and took 80% of the value out. Then I used that money for deposits to buy 2 condos and another house. And I just repeated that over and over. But as I met other more experienced investors, I sold my condos to buy cash flowing houses.
I have done things differently than others here. Made a few mistakes along the way. I was able to quit my job after a few houses. I never took the cash flow from my rentals, I instead use the money to pay for my personal house and all its expences so I live for free. I also had to quit my job because I bought 3 houses one summer and I couldn't renovate them and have a day job at the same time. It was alot of work, but as every year goes by it gets easier.
Rental Property Investor · Toronto · Member since 2018 · 126 posts · 106 votes
7y
This website calls it the brrr strategy and it seems like everyone is doing it. Refinancing your personal home to get started will jump start your investing career. and you will have money for the dp and Reno's. And depending on your equity you may have enough for 2 houses.
Rental Property Investor · Los Angeles, CA · Member since 2017 · 4 posts · 2 votes
7y
@Amber Tippett Yes, because if you buy right, the return on that equity funds will beat the 4-6% interest on the HELOC. Shop for a good HELOC, know the numbers of what you are getting into with both the Heloc (adjustable) and the rental. Build in lots of buffer for safety. Good luck.
Long Beach, CA · Member since 2019 · 25 posts · 2 votes
7y
@David Steinbok Yes, I'm reading up on BRRR, seems like a great strategy for building up the portfolio quickly, as they say. I had not even considered buying TWO houses with my equity! Will think on it..thanks again!
Investor · Pacific City, OR · Member since 2016 · 174 posts · 123 votes
7y
We did a HELOC to help finance our first rental purchase. We used it for the down payment and repairs. The seller carried the contract. After we fixed it up, we financed it with a bank and paid off the note to the seller and replenished what we spent on repairs (refreshed the HELOC).
Make sure you calculate your HELOC expenses as part of the rental property costs to make sure you're cash flowing.
We did this in 2007-2008 when the market was going down, so you have to make sure you're fixed up rental will appraise to get your HELOC refreshed.
Our HELOC also got frozen back then, so we couldn't borrow against it anymore and do the same process again, which paused our investing for a few years.
@Amber Tippett you’re welcome. What I meant by “conservative cash on cash” was an additional analysis that is more of a worse case scenario on your target property. If it still can cash flow with aggressive (low roi) estimations you’re in a strong spot to start. Hope that helps.
Real Estate Broker · Houston, TX · Member since 2017 · 64 posts · 27 votes
7y
@Amber Tippett Read up on cash on cash returns – use leverage effectively when buying real estate and your returns will be a lot higher – I would take out a HELOC and buy multiple cash flowing single-family properties instead of buying one property out right with the cash - your return on investment in the long run will be much greater - budget for capex - I personally do not like deals where I'm making less than 400 per month positive cash flow - rental property can make you money 5 ways - equity capture, appreciation, depreciation, cash flow, principle payback and tax advantages
Long Beach, CA · Member since 2019 · 25 posts · 2 votes
7y
@Sean Lambert Thank you for sharing your experience! Helpful to hear the details and nuance of how it can all play out. We are cognizant that the market may be slowing again, so we'll be careful with the numbers. So you repeated the process with a HELOC on your next property instead of BRRR? (Or is that the same thing as "cash out refinancing" as described for BRRR?) Thanks!
Real Estate Agent · Freehold, NJ · Member since 2018 · 115 posts · 49 votes
7y
@Amber Tippett
It's how a lot of people get started. Best advice would just be careful and have reserves ready Incase of worst case scenario. Capex can become a problem for the ones who don't expect at least one problem to happen. Other than that it's pretty common for people to use their equity for their first rental. Good luck!
Long Beach, CA · Member since 2019 · 25 posts · 2 votes
7y
@Jon Lanclos Excellent, thank you! Buying multiple homes to start out is scary but I will definitely consider it and learn as much as I can before jumping in. Where I live in SoCal is pretty dang expensive, so I’ll be looking into other areas. Not sure how far I want to go (again, mostly psychological). Appreciate your input!