100k to burn, best cash out strategy?

60 Replies

Hey all,

I have a kind of unique situation. My wife and I (we're 25 and will have no debt) are about to close on the sale of our primary and make about 100k, by a stroke of luck, and some sweat equity. Our goal in the near future is to gain financial freedom through owning rental properties (yep, we read rich dad poor dad/cashflow quadrant). We have planned to start out with buying small multi's and moving up to larger complexes, but that's where things get tricky. I have not had a w-2 job in over 2 years, and my wife will be working part time (having kids soon) after we move. I would like to buy as many small multi's (probably under 5 units as there are more available) as we can get right off the bat (i'm talking 30+ units this year), but I'd like to be able to pull cash back out to keep buying. What I have planned so far is: buy with a personal cash/hard money mix, then cash out refi. But from what I can tell i will have a hard time with a cash out refi and no w-2. we both have great credit (over 750). Will a portfolio lender be the best bet for cash out? I just came from reading 


awesome content about avoiding the seasoning period, but my takeaway was that we won't qualify individually with no jobs..  I have been a student of real estate investing for the last 5 years and really hate working to make other people money (w-2). 

Who has a strategy to make our dreams come true?

Thanks a billion


Originally posted by @Adam Boonzaayer :

Ps. We’d buy a large multi if we could, but I imagine with no landlording xp we won’t get very far?

 You can get around that with a great property management team.  Especially, if you can find a local lender to finance the deal.  Congratulations on the path to independence. 

@Calvin Lipscomb Thanks for the input! And good point.. Although after thinking about it some more I guess the major reason I'm looking at the property size that I am is because I plan to self manage (although I do factor 10% into each deal evaluation for PM) and there are pretty much no larger multi deals around my area that I have found.. I also am hands on and visually oriented so for my first deals I would like to be able to keep and eye on them as well as to build systems for future management. After some time of building cash flow and net worth I will start looking outside my market for larger apt deals. 

Any advice on keeping my cash liquid as I acquire these first units? 

Hi @Adam Boonzaayer , first of all - congrats!! When you go to re-fi you may be able to get a co-borrower on the loan that helps you qualify. Perhaps you have a family member that would assist. The loan is likely going to be non-recourse (meaning if you stop making payments, the lender's only recourse is taking the property back - aka they can't go after the borrower's personal assets...confirm with your attorney or legal pro ;-D). 

@Tom Blake I probably should find an RE attorney BEFORE I get started huh? haha..

I'm not sure if you read the post that I linked, but do you think with a co-borrower I would be able to use the LLC-loan to self strategy?

For any Indiana locals: we will be moving up to the South Bend area so any attorney, accountant, lender, PM, wholesaler, etc, recommendations would be much appreciated!

If your not able to get a loan you can look into parking your cash into REIT’s or Mortgage backed securities. Both of these tend to be liquid securities so it shouldn’t tie up your money if you need it.

@Adam Boonzaayer it might, but here's the bottom line: if you have some family/friends that will help you if/when you need it, you should be able to get it done. There are many lenders out there, each with different rules/regs, so before getting too deep into one approach just get the high-level basics understood: most lenders will do 70-75% LTV, debt service coverage ratios are usually in the 1.2-1.3X range, and if you don't qualify on your own get other people involved and take them out to dinner or send them on an all-expenses-paid vacation.

Just an easy tip: why not wait 5-7 yrs to have kids so you can actually enjoy them when you are “financially free?” They are growing organs now in labs and using stem cells to replace knee cartilage- unless you get hit by a bus you are going to live until you are at least 100. Patience.

@Tom Blake

So what you're saying is I should just start buying properties at <70% of value and with proper DSCR and I shouldn't have an issue getting my cash out through a refi? Another major criteria for me will be WHEN I can get my cash back, is there an industry standard on the seasoning period before a refi? (the linked article is explains NO seasoning period when you refinance (not cash out) an existing mortgage such as a loan from a LLC that your own. This is obviously very appealing to me but I'm not sure how/if it would work given my altered circumstances)

@Account Closed  

No way, that won't end well for me

REIT’s and mortgage backed securities both can give monthly cash flow. REIT’s can pay monthly dividend as they are required to pay about 90% of there profits to shareholders each year for tax purposes. you desire and you can super charge your monthly income and reduce your volatility and risk with selling options. This gives you exposure to the real estate market appreciation, cash flow, and keeps your money liquid while you look for your deal and qualify for a loan. That way it’s not just sitting in account losing real value to inflation. You also might find that you like this strategy better do to lack of maintained and other issues.

@Adam Boonzaayer You'll maximize your potential if you can look at value add properties. If you are not afraid to take on a property that needs renovation and results in increased rents, when you go to cash out refi you'll get the best bang for your buck. Build up a relationship with some local contractors and get an idea how much it will cost to fix up the run down two flats in your area.

@Storm S. I guess what I'm after is cash flow as well as cash on cash return. I'm not sure how REITs and securities work, but I know if I buy rentals far enough below market value, and and am able to get all of my cash back out then I am getting an infinite return. I just have to look hard enough to find the right deals.

@Bob Floss II at first glace at the notification I thought Bob ROSS replied to my post! "and over here we're going to paint some happy little cash cows...beautiful.." haha but I digress.. Thanks for the input, that is definitely what I'm after. Although it will make less of a difference with residential multis vs commercial.. Like I said above I'd like buy with built in equity to be able to pull all my cash back out. Luckily I have a cousin that wholesales very successfully nearby and he is sending me some deals that didn't work for him but are great for me!

I like your strategy man, I to said enough of the corporate world and left my job, I'm 25 and said if there was ever a time to go full steam ahead at REI it is now!!! problem is I live in California so rental properties aren't cash flowing like one would need but my plan is to flip properties locally, and parlay that money into rental properties out of state. Indiana perhaps?????? who knows.

Good luck!!!!

Buy and rehab with cash or HML and then refinance with a commercial/portfolio loan once rented and stabilized.

Working backwards with the information you provided....

30 units would likely mean a commercial loan which would require in the range of 20% down. Let's say you find and negotiate the deal and eliminate realtor fees. You're still going to have roughly $10k in additional costs and reserves. So that means you'll have $90k to invest puts you at a multifamily purchase price of approx. $450k.That breaks down to $15,000/unit which in/around the Indy market is going to put you in the ghetto or a complete rehab.

The cheapest I'd really go is around $25k/unit and that's still likely to be a distressed property. If you use a realtor your purchase price will be a little lower.

While definitely a good idea to start building a relationship with a lender, it would be good to go to them with realistic ballpark #'s to discuss. Use the BP calculator and others and identify a realistic scenario you can discuss with a lender.

Maybe I'm missing something but just wanted to share my thoughts to help you get other perspectives! Wish you the best of luck and congrats on being debt free!!!

Originally posted by @Adam Boonzaayer :

@Storm S.

Maybe after I've bought as many properties as I can handle I will start funneling cash flow into a lower maintenance investment like you mentioned. I'm looking for big cash flow right now to live off of

 100K is going to be hard to make work to get cash flow to live off of. 

I was in the same boat a few months ago with exactly 100k as well, and I bought 8 properties on a portfolio loan. I now cash flow $3400 a month if no expenses, no problems, and 100% rented. But that has never worked out. 2 houses had bad tenants and needed to be vacated. Multiple small expenses and 1 big electrical one at the tune of $4500. So I don't think you have enough money to put down to cash flow well. Maybe it can help you supplement an income, but you're most likely going to need either some kind of job or more money to put down if you want to live off the cash flow.