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??
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.
@Amber Tippett I also chose the HELOC approach for starters. I bought a tiny primary residence some years ago which is paid off and was able to find a local lender to offer 100% LTV at prime +1%. In case you're looking for more than the standard 80% LTV HELOC, credit unions are more creative with what they are allowed to offer. E.g. there's no PMI payment on my HELOC. Eventually, I found a 2/1 w/ 1k sf for $47k in a neighboring town and are in the middle of a ~33k rehab. Once done, the ARV should be at least $110k which means we should be able to pull an extra $8k out of once we refi the rental with an 80% LTV loan leaving about $200-$250 cash flow/mo. That $8k can then be added to the budget for the next deal. Rinse and repeat until deals go from SFRs to commercial multi-families ;-)
@Peter Schultes Thank you for the deets! Sounds like you have a great thing going. $47k is like a dream-A 2/1 1,000 sq SFH in my area is about $500k, haha! I'll be getting creative for sure. Best to you in all your ventures!
@Justin Margedant Still definitely in research mode, but one thought is near my Property Manager Dad who I’d trust to handle it-he is based in Fillmore, so maybe west of there towards Santa Paula or east in and around Santa Clarita. You say high desert, like Lancaster area?
If the numbers make sense, I highly recommend this strategy or variant (HELOC) depending on your circumstances.
I've done cash-out refis on my primary rez several times to support buying rentals. This was when interest rates were going down. Then, with rising interest rates, I wised-up and for the last ~6 years, have used a HELOC as well as loans against my 401k for acquisitions.
@Amber Tippett
Awesome if you have your dad in the business. I do property management & real estate whi h gives an advantage for sure. But really now almost everything can be done mobile/out of the area. Collect rent online,find contractors and just about anything. My family has had a house at the river in needles, ca for the last 25 years and while there I noticed cheap properties. Soon as they announced the marajuanna business was coming to town I jumped in with my first brrrr. Bought for 85K in a nice area of town, rehabbed, refi with now almost 500/mo cash flow.
For you it might be good to look for a cash flowing area by your dad! Good lucky!
@Lee Bell Haha! It’s crazy right?? That’s what makes investing scary..our house more than doubled in value in the six years we’ve owned it but it foreclosed on the owners before us!
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??
Amber, as @David Steinbok wrote above, "...your rental is technically purchased with 100% borrowed money" if you use a HELOC for your downpayment.
What are the numbers telling you? I'm guessing with the primary loan and the HELOC you're probably at zero cashflow?
If you can provide some numbers we can offer more advice. Regardless, however, you need to have reserves in place.