I am just starting out, and looking for my first deal. I want to invest in buy and hold, cash flow properties. I live in Brooklyn,New York and prices I am seeing are CRAZY.
I got very lucky and purchased my condo just before the market took off, and it has doubled in value in 2 years. Would it be wise to try and tap the 300k equity to use towards my first deal?
Should I sell and buy a triplex? The prices here would make cash flow thin. Just feeling confused about how I should get started.
@Frank Acquafreda I am a huge fan of tapping into equity for this reason, however...I would not suggest that anyone tap into the equity of their own home. If a rental property becomes a problem and you lose it, you just lose a rental property. If your own home becomes a problem, you own home is put at risk. Not a good idea.
Good debt vs. bad debt. Good debt makes you money, bad debt costs you money...or in the case of a default on your own home, can cost you your own home. I always look to refinance to get my equity out of my rentals (good debt), but I pay off my own home (bad debt).
@Joe Villeneuve thanks for the reply.
Part of me wants to sell, collect the profits and begin that way. The condo itself would give positive cash flow as a rental so that is also on the table.
What I would do...
2) Purchase a triplex using the lowest amount down possible to a) secure a place to live for yourself, hopefully eliminating or drastically reducing your living expenses and b) conserve your remaining capital
3) Invest in cash flow opportunities out of city/out of state. You're within a few hours drive of many great cash flow cities. Take your remaining capital, find good SFH in good areas, buy them cash, rent, let them season, connect with a solid portfolio lender and build your empire.
@Frank Acquafreda What Sam J. said. If you aren't in love with your home, then sell it and access the equity that way. Just be careful. If your property went up in value, chances are so did the one you might want to buy...so that equity you think you have may not be there since your next house may suck it up.
Sam J. thanks!
Do you have any recommendations for cities I could be looking at for cash flow property?
@Frank Acquafreda I would check out Pennsylvania markets. Ohio may be a bit too far for your comfort level but there are some amazing cash flow areas in that state as well.
@Frank Acquafreda What you described in your initial post is exactly what I did (albeit in Portland, OR). My wife and I bought a house for $190k, and by luck a couple years later it was worth $325k, so I extracted some equity through a HELOC and purchased a triplex. In hindsight the triplex purchase itself wasn't a home run (really low cash-on-cash considering I had to put $90k down with conventional financing), but here's why I'm happy I did it:
It got me in the game.
That alone was a huge thing. I had no idea at that time (2006) that a few years later I would be a full-time real estate investor. But I'm fairly confident that if I hadn't had a "just do it" mentality and bought that first property, I might not be an investor today.
I totally agree with @Joe Villeneuve about being careful with your home equity, and I think Sam J. proposed strategy is a great one too. But probably most of all, I think instead of trying to craft the elusive single perfect strategy, it's important (in my opinion) to simply get started one way or the other and take that first step.
You're at an exciting stage, and I wish you the best!
@Jeff Stephens Thanks for your insight. That is very inspirational. I would love to hear more about your specific path to "full-time investor".
@Frank Acquafreda You're very welcome--thank you for posing a good topic. I'm happy to share the story of my path, though it may not be as exciting as you would think! :)
I owned a business (a marketing agency) for about 10 years, so as my business had profits, I'd pay down the HELOC I took out to buy that triplex. Then, when there was a good available balance, my wife and I would borrow it again and go buy another property (SFRs after that first triplex). Then we moved and kept our house as a rental. That got me 4 properties with 6 units, plus my primary residence.
A couple years ago I started getting tired of my marketing agency, and I started winding it down and doing some soul searching to figure out what my next endeavor would be. I knew I'd always been intrigued by real estate investing, but all I knew was the "get wealthy very very slowly" strategy, and knew nothing of the "put food on the table next week" strategy (short of being a realtor, which I wasn't interested in). So I started studying short-term investing strategies like wholesaling and flipping, and teamed up with a partner a year ago, and we've both been at our new business full time for about a year.
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