$500,000 in Properties, $200,000 in equity, $0 Income?

Question

Hello everyone,

My name is Peak, I started my real estate journey back in April of 2019. Before i get into the meat of things i think I should share a quick backstory:

I started reading books and looking into wealth creation within the past year, shortly after found BiggerPockets and the benefits of real estate. I am a recently commissioned Air Force Officer, but currently facing a long waiting period before starting training here in Mississippi. With that being said I am not being paid by the Air Force, which has made it somewhat difficult to expand my portfolio.

Heres my current situation:

I bought my first foreclosure (primary residence) in April for $70k and have since remodeled and got it cash-flowing using The House Hacking Strategy.

Shortly after, in June, I purchased a Duplex for $22,000 via Seller Financing with roughly $5000 downwhich immediately started cash-flowing and offered a major equity advantage. After visiting a small bank, they appraised the property at $60,000, because this was a “handshake deal” meaning there was no deed of trust or outstanding mortgages against the property i legally own it outright. Despite my unemployment status the bank gave me a $40,000 equity loan against the duplex which opened up major doors...

With the equity loan, i managed to purchase a 10-unit apartment complex for $160,000 with $20,000 down also seller financed. The remaining balance from the equity loan is what i have been using to remodel the apartment complex and it has come along nicely!

This brings me to the title of this post...

In a short time, I have acquired an estimated $500,000 in real estate, with roughly $200,000 in current equity. This has snowballed for me and while i am excited, i have no idea how to access this money given my employment status AND low time and grade in the business. I do have rental income, but the 1-2 year timeframe banks prefer hasn’t passed yet.

In short, I’m running out of money to finish the remodels on my apartment complex, I do have a serving job where i make some cash but not enough to compensate the labor hours and material cost my contractors need to finish up.

What can i do? What would you do? Help me please!

John Corey · Answer

Following on Danny's suggestion, you would be consolidating. Just because you can own something does not mean that you should continue to do so. If you are not seeing the cash flow you need, it is a matter of time before you blow up.

Given the Air Force start date, having a CF positive portfolio is better than a larger one which needs more care and feeding.

Danny Randazzo · Answer

@Deshawne Peak since none of your investments are cash flowing you should sell them all and put the equity to use in cash flow producing assets. You should keep your primary residence unless you can move out and find inexpensive rent so then all of your equity is working.

Damaso Bautista · Answer

@Deshawne Peak

If you are cash flowing and you don't need to money. I don't see anything wrong with just waiting until your current properties mature enough where the banks will start lending against them. Then you can start up again and continue on your way. Just my 2cents.

Michael Ealy · Answer

Deshawne,

Based on what I read - your properties (at least the first 2) are cashflowing but you're using the cashflow to fund the 3rd/latest acquisition. And with you having no job, you can't refi out to pull cash to finish the rehab. Did I summarize your situation accurately?

If I understood your situation correctly, one solution is to find a JV partner who can provide you with the rehab funds in exchange for splitting the profits OR, can you approach a hard money lender and have them provide the rehab funds so you can finish the project? Hard money lenders don't care so much about your job as they care about the asset.

Selling can be an option too BUT, if you want to sell quickly, you got to sell at a steep discount.

I mean, how quickly do you need the money? If in 1-2 weeks you'll run out of cash, then selling won't solve your problem but a hard money lender probably can.

Greg Dickerson · Answer

Sell the properties and take the equity and compound it by flipping. You can build your cash way faster by flipping than buy and hold at that level.

Jim Goebel · Answer

@Deshawne Peak

Get creative with phasing in the remodels, perhaps? When you do that, use the cash flow to fund future work, even if it means you have to go slower... You'll need to be very, very, smart about splitting up that scope, and renting a place partially.

Most lenders lend on cash flow; however you may find a lender who has experience in more equity lending, but those tend to be investors that don't mind 'taking' your asset, if you catch my drift. As in, a worst case default situation they'd still feel good about their position.

Good luck

$500,000 in Properties, $200,000 in equity, $0 Income?

$500,000 in Properties, $200,000 in equity, $0 Income?

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