How should I spend 100,000

Question

Hi I live in the DFW area and I am looking to start buying rental properties. I have about 100,000 in equity in my house that would like to use in the form of a HELOC to buy rental properties with. I want to use my cash flow to pay down the HELOC and keep using it until I achieve a Portfolio large enough to produce a healthy buying power to sustain growth. What do you think of this strategy? Any recommendations?

Can I get a conventional loan for investing in rental property with only putting 5% down? I have seen that I can buy a second home like that. A lot of places I have read is that mortgages for investment properties require 20-25% down.

I am also trying to decide if I should invest in DFW or go out of state with a turnkey type of platform (roofstock or homeunion). Any thoughts?

Thanks,

Drew

Cody L. · Answer

Me? Ideally? Find a $600k property that you can buy for $500k. Get a local bank to do an 80% LTV loan. Ask the seller to provide a $50k repair credit in exchange for a $50k increase in price. Property should appraise for $600k. Bank does a $440k loan (80% of $550k). You bring $60k to closing ($550k-$440k - $50k credit).

Now you have cash left as buffer, for closing costs, and some capex. Get that sucker fixed up a bit. Raise rents. Do a refi. Hope for a $700k value. New loan of $560k (80%). That pays off the old loan and your original down payment.

Go and do it again.

That, in a nut shell, is how I went from 8 units to 1,500 units w/o any investors

Jason Pabon · Answer

@Drew Smith most conventional lenders will require 20% for investment properties. I typically see investors that live in expensive areas invest in other markets (money goes a lot further). You can own 5 homes instead of 1 with the cash you have and start to build a nice portfolio. Let me know if you need any assistance or want to learn more about remote investing.

Good luck!

Nick Shri · Answer

I Spent 8 years in DFW and then moved to Virginia in 2003. UTD grad here. Still have family in DFW and I am thinking of investing down there. What are the good areas to invest in? My parents almost bought a duplex in Richardson (or was it in Garland) but ended up moving to Virginia with me. What are some good towns in DFW these days for investments? Is 75 still the tech/telecom corridor that fetches good renters?

James Wicker · Answer

@Drew Smith well that certainly makes sense to me. I like all of these ideas and having been a pro member for less than 24hrs, I've learned a lot already.

Drew Smith · Answer

Hi guys thanks for the feedback!

Thanks for the advice Greg. This is why I wanted to jump into this forum is because of networking info like lifestyles unlimited. I will be sure to check them out!

Hey James thanks for your time and question. I thought about doing a cash out refinance and I am still considering it. The reason I am gravitating towards a Heloc is closing costs are less up front and its reusability. I can pay it down and reuse within the 10 year period of only paying interest on it. With a co-refi once I spend it then I will have to pay it down and go through the hoops of refinance again to get more money. My mindset is to use my cashflow to pay it down and accelerate my buying power. What are your thoughts?

James Wicker · Answer

why do a HELOC? A cash out refi gets a longer term and lower interest.

Alex Grosvenor · Answer

@Drew Smith The best way to find out what lenders will do what for you is to go in and talk to the smallest banks you can find. One with only like 3 branches or just in DFW. Those are the banks that will work with you the most putting less than 20% down even on an investment properties. It may take 20 times of you going in and bugging them to do it. But the smaller banks can bend the rules the most. Especially if you build a good relationship with them.

Greg Scott · Answer

Drew:

I've been investing in DFW for years from Detroit.  Its a great market.  It doesn't make sense to me for you to go out of state.  If you don't like the prices in DFW, San Antonio and Houston also have great opportunities.

No, you can't do a straight up purchase with 5% down on a conventional loan for a rent property.   But, it is possible to buy properties with less than 25% down using hard money that you later convert into a conventional loan.

Since you are in DFW, you really ought to consider joining Lifestyles Unlimited.  They have a large physical office in Las Colinas (as well ones in Houston, San Antonio, and Phoenix).  They also have a huge, vetted vendor list so you can instantly build a great team.  Here is a good place to start.. https://freeworkshoplivestream...

Since 2011 my wife and I have been flying down 3-4 times per year to DFW to attend classes / events at their office.  Things have moved 100% virtual now but hopefully we'll be back to in-person events soon.  We are looking forward to coming back down.

How should I spend 100,000

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