How to buy after initial refinance?

2 Replies

Let me try this again..

Started out with 150k cash in July, purchased a fully occupied 5 unit worth 120k for 100k. It has a 6th unit that needed to be redone from the ground up. We’re about 12k into the remodel and it’s about 75% complete, should be finished by the 1st and cost 20-25k total. I also entered into a land contract in August for an additional 3 duplexes for $90k. I put $9k down and the remaining amount in the business account while roughly $3600 is withdrawn monthly for 24 months at 6% interest. In January it will have been 6 months since the starting of collecting rents and 5 months into the land contract payments. I pay my property manager $75 per unit a month which totals $825 ($900 when the 6th unit is rent ready.)

Revenue – land contract payment + management fee + insurance + expenses (not including property taxes) at the conclusion of the first six months here will have a yield of 18-20k in profit total. I should still have about a 10k-15k cushion in the bank come January after the duplex payments thus far and remodel costs.

I plan on doing a cash out refinance on the 6 unit I own 100% equity in as soon as the remodel is complete and I can get my building appraised. It should appreciate to 150k with the added unit. There are a handful of other fully occupied 6-plexes ranging from 90k to 200k around here that I’m interested in at the moment.

Here’s my question to the investment experts here:

Moving forward.. should I buy 1-2 properties a year and slowly build equity with straight cash from the original refinance and do consecutive refinances every 6 months or so? Or should I put money down on a handful of different mortgages immediately? What investment strategy would you employ and how easy is the latter to accomplish with a lender?

Thanks, this place is great btw! Such a good resource.

@Paul M. sounds like you've been doing awesome!  I don't like borrowing over and over due to the costs and headaches, so I'm not best-suited to answer that for you. I would buy with what I had.

I would find a different medium than a Land Contract to finance future seller-financed purchases, though.  You don't own them until you've paid them off.  Hate to see the seller get into financial trouble, resulting in 'your' properties getting slapped with a bunch of liens. Especially after you've done so much work for the seller's property.   Cheers!

Yeah one thing I'm worried about with the land contract is I'm not sure how uncle Sam looks at the payments. I'm sitting down with my accountant soon to figure that stuff out. 

The way this all works is that all the profit just funnels back into the account along with what I have left after the remodel to cover the land contract payments and expenses. While I have been and will continue to slowly build equity, I wont have the opportunity to actually spend or even really save any cash until that land contract is up in another year and a half. For my personal life that's fine because this was always going to be a 5-10 year investment plan anyhow. Its worked out well so far and I dont nor will I need to rely on that cash to live on for a while. For my business goals, in terms of growing that's not so good because it would take 5 years or more strictly using cash from profit to buy my next 6plex. Thats too slow. I need to borrow against my equity unfortunately. 

I just dont know the pros and cons, after pulling the cash out of buying a property fully with cash and then refinancing within 6 month repeat repeat aka 'BRRR method'. Is that smarter than just using the cash to put 20% down on 5 mortgages all at once? I realize with the latter plan there is more risk involved but I would also be collecting rents starting immediately from turnkey properties I was planning on buying anyways? Has anyone tried one strategy vs the other?

I get nervous when I see posts on these forums blasting David Lindahl and the blogs on BiggerPockets claiming that they dont work for most people and that investors run out of cash or whatever. I want to be smart with my investments, anybody have any suggestions?