Looking for insight and coaching around my plan.

3 Replies

I am looking for some insight into my current situation. I live in Utah which like many parts of the country is on a huge appreciation terror as of late. I am looking to get my first rental property under my belt and begin to fulfill my goal of 30-50 properties in the next 25 years. I am currently 41 and make a decent living about 175K a year but with 4 kiddos and life's expenses it just feels like things are a little tight. I have my primary residence on a 15 year loan with about 9 years left. I owe around 219000 and it would appraise right now for around 600K. I owe 40K on a Heloc after just finishing my basement. I only have about 6000 in short term savings right now and around 500K in a 401K for retirement. I have no other debts on cars, or anything else. I have been at my job for over 10 years and I love what I do but I want more for myself and my family. I have a job that I work out of my home multiple days a week and I have great flexibility.

The reason I divulge all this information is so you get a true picture of my situation so hopefully you can help. I want more and I have always wanted to be a real estate investor on the side. I grew up doing framing and concrete in high school and enjoy many hands on aspects of building. I also owned a painting business on the side for years and painted Maverick gas stations a large chain in the local area. I did a lot of the basement work myself and have many of the tools. I wouldn't say I am naturally talented at handyman work but I like to work hard and learn. In 2011 I actually flipped a few houses with my Bother in law who is a very successful realtor in North Utah County. We used hard money and made a small pile of cash.

My goal is to build a portfolio of 30 houses or more over the next 25 years. I want to cash flow 200 per house and to be a landlord and have my tenants pay down my rents. I would also love to flip houses when I can on the side and I would like to be involved with some of the work myself like installing flooring, paint, trim work, landscaping.

So not having tons of short term funds right now but wanting to eventually improve my situation. I went to America First and added to my Heloc and bumped it up to 200K. So I have 160K to still use. I started looking around the state and everything was getting pricey and my brother in law tells me he think we have another year maybe year and a half then the market will correct some not like 2008 but dial back a bit and that's when I want to be ready. I don't want to wait so I begin looking in the state trying to stay closer to home for my first rental. And Vernal Utah is jumping of the page at me. Vernal has been in a depression since around 2014 with the oil fields cutting so many jobs. Its boom or bust in Vernal like in the Dakotas. When it's a boom you can't find houses or rentals. So right now there are tons of short sales in the area. But I also work with doctors in Vernal for my job and many have families working in the oil fields and it is getting better. It's slow but improving. So I find a cute town home that around my house in Lehi would sell for around $230,000 right now and it listed for only $79,000. Its newer built in 2007 and looks great so I drive by it one day when I am working in vernal with a medical sales rep. And this cute little old couple are renting in they look nice and I chat with the man for a little bit. They are currently renting on a lease that ends in May 2018 for 850 a month. The home is a 3Brm 2 and a half bath with two car garage. Its 1523 square feet. It's clean, turnkey as they say from the pictures. I have not gone inside to see firsthand just the outside which looks great. Below is the picture of it. When I am looking at the property there is a sign for sale by owner on another town home a few doors down so I call on it and the man tells me it sold so I ask for how much and he says $129000. There are also two other on MLS at the time list for $129000. Both have since sold. So I feel pretty good about offering. There is an HOA of $125 a month which is high but it covers all the yards, and pays for Sewer, water, and garbage as well. I have my brother in law call the realtor listing the property to do some detective work. She tells him they have multiple offers and are getting ready to pick on so we talk and feel like if we are going to get this property we need to offer $92,000 and be willing to pay cash. This means I am using my Heloc to pay it since I don't have the cash which is why I want to build a rental portfolio in the first place. The realtor calls back and says that she has accepted my offer and I submit a 1000 in earnest money to hold it. Now the panic sets in a little can I really afford this? My Heloc charges 1.25% of the balance in a payment every month so currently I am supposed to pay 500 a month but I pay 1000 on paying it down. so if I now add another 92,000 onto the 40,000 I owe that's a big payment of 1650 a month so after rent that's 800 from my pocket which I can do but I won't want to for long. I think the property is a good deal but who knows if the bank will sign off on it especially with neighboring homes selling for so much more. If they do I plan to buy it even though I live 2 hours away and manage it myself.

My question is how long after I close can I do "Cash out refinance" at 25% LTV. Even if it appraises at $119000 I would then be able to put that 87000 back onto my Heloc for another deal and then my payment with Principle and Interest, insurance and taxes and HOA with Vacancy and a little for expenses would be around 700 a month. So only cash flowing $150 but rent is also low and when the market improves more a realistic rent would be around 950-1100 adding to my cash flow. Plus appreciation of the property should be good. You can't build this thing for the 60 a square foot it will cost hopefully.

My Credit is good around 800 and I had already been preapproved for an investment property by Box Home Loans. I am ready to be methodical and do as many deals as I can over the next 25 years. If you have advice for me I would appreciate any knowledge you can share. I would love to team up as well. I don't have much to offer yet, but I do have handy man skills I can contribute and help if someone wants to show me the ropes. I am honest and I will work my hardest until I succeed as a real estate investor. If you have other opportunities I am all ears. I have another brother in law who is a loan officer and he and a partner have been working on flips in Chicago with some turnkey outfit. They do it through hard money which can be scary but he committed to 5 properties and the first two just listed on MLS and one sold in 5 days for a 35,000 profit. I am considering looking into this as well. I know many of you are crazy busy and you get people on here every day saying I want to start please help. I am going to make this work either way. Hopefully my passion came through in this post. I am going to do this and if you help you will not regret it I will pay you back. Thanks for reading this novel.

Would you do this deal?

Hahaha--You're like me.  I have some lengthy posts as well, and mine are usually just answers.  ;-)

Personally, I'd be scared to buy in a boom or bust type of town.  You aren't necessarily promised that the next boom will happen after every bust.  Not to mention, if for some reason you are forced to sell during a bust, you could lose all your profits.  But that's my opinion.

I'm also concerned that you're talking about cash flowing more when the market improves.  I agree, $150 isn't good.  I wouldn't do it.  But you know that's not good.  Sure, "when" the market improves sounds nice, but since we aren't fortune tellers, it could also be "if" the market improves since this town's slump doesn't seem to be simply because of the typical national market cycles.  But let's say you CAN eventually get $1000 when things improve.  But it's a boom or bust town, so things will go down again, and perhaps later you can't even rent it for $150 cash flow.

Too me, it all sounds too unpredictable and scary, but maybe you have a higher risk tolerance than I do.  lol  I wouldn't do the deal...or perhaps even any deal, in that town, but that's me.

Good luck!

@Rhett Dean Hi Rhett. I know Vernal fairly well. I have never lived there but I have driven through a lot and repossessed a few cars there. The price you are buying it at is $30K below market so I think that is a great. You could turn around and sell it in 6 months probably and make good money. That below market price also allows you to have a lower payment once you refinance. That in turn allows you to lower and or increase rents as the market changes. Someone with a larger payment wont be able to lower to where you go assuming they have a higher payment. 

Another reason I like your town home is because it is nicer than a lot of other rentals in the area. Im sure you have driven around and seen how rough some of the older neighborhood are.

The concern is obviously the 2 hour drive. 

There are deals to be had in the Salt Lake valley. You just need to hunt for them. My partner and have found some and are getting up the nerve to offer on one. If you buy along the Wasatch front for cash flow then I wouldn't worry about the market correcting itself in a few years. Since you bought based on cashflow you are only concerned whether rents will cover your payment. I do not believe rents will be decreasing anytime soon. I also don't think a correction in the Utah market will be that large. 

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