Rental Property Investor · Saint Augustine · Member since 2019 · 26 posts · 7 votes
I am new to real estate investing. I am planning on buying my first rental over the next few months. I do not have much to start with. I want to utilize the BRRRR method of investing. I am planning on buying properties around $40,000. I have $10,000 for a down payment, which meets the 20% that most hard money lenders ask for when lending to new investors. On my primary residence, I have about $35,000 in equity and a lender that will give me a HELOC for up to 95%. My question is: should I use my $10,000 that I have saved on a property down payment or should I put it to the principle on my primary residence so that I can take out a larger HELOC to use for down payments? Thanks in advanced for the advice!
@Sean Witherspoon Since you are new, I would keep saving and try to only use the 10k you have now to get into your first property. Don't put your primary residence at risk by leveraging that any more than it already is. After you've done some deals and have more experience then I would say you could start to consider that. Good luck.
Man, that sounds really tight. What is the ARV of the homes you plan to buy at $40k? What is your plan after you are done with the rehab? Refinance out and rent? I would not refinance your primary to 95% that is a lot of debt to take on and risking your primary for this.
@Sean Witherspoon Since you are new, I would keep saving and try to only use the 10k you have now to get into your first property. Don't put your primary residence at risk by leveraging that any more than it already is. After you've done some deals and have more experience then I would say you could start to consider that. Good luck.
@Bob Woelfel and @Frank Wong thank you guys for the replies. Something I forgot to say is that I will be moving over the next few months as well and will be renting out my current residence. And yes, my plan is to refinance and rent out the properties. My thought process is that with the HELOC, I would use it as a down payment for 2-3 properties. Since I will be moving, my chance to get the HELOC for my current residence will soon end.
What you need to do first, is build up your $40k seed money. That will give you more options.
My suggestion would be to start out doing Lease Options. You can control a lot more properties with far less money, and turn your $40k into a much large amount in a much shorter period of time than most (almost all) other options.
@Sean Witherspoon I was in a similar situation as you a number of years ago. I did a HELOC on my personal and used it to invest in other projects. I had hoped that it would be a short term thing, but challenges arose and I wasn't able to pay the HELOC all back when I thought I would. I ended up having to carry the HELOC for 3 years making payments and only was able to pay it all off when I sold that house 3 years later. Now, the HELOC did allow me to do other investments, but when I moved out of that old primary and turned it into a rental I wasn't able to really cash flow it because of the additional debt payments. Leverage can be a great tool, but when you leverage to take on more leverage your cash flow and reserves can really suffer. It all worked out for me in the end and appreciation was definitely my friend, but there are risks associated with leverage and taking on too much debt. Many times it doesn't get talked about enough on this site. Good luck.