100k to burn, best cash out strategy?

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100k to burn, best cash out strategy?

Adam Boonzaayer
New to Real Estate · South Bend, IN · Member since 2015 · 30 posts · 26 votes

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 

https://www.biggerpockets.com/forums/48/topics/460...

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

Adam

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Roshan K.Pro Member
Oklahoma City, OK · Member since 2017 · 258 posts · 215 votes
8y
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.

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  • Roshan K.Pro Member
    Oklahoma City, OK · Member since 2017 · 258 posts · 215 votes
    8y
    Originally posted by @Brett Goldsmith:

    You may want to start off buying one duplex or triplex below market value to get the hang out being a landlord. Being a landlord tends to cost more than one thinks. I'd be careful about over leveraging without being a very high income earner or having substantial reserves. This is how people find themselves in a very unfavorable position. For example I had 3 AC's break last month, a tenant that had to be evicted, and had to remodel two units to become rent ready. 

     In my experience, albeit short experience, it always seems things go wrong all at once or not at all

    3Reply
  • Adam Boonzaayer
    OP
    New to Real Estate · South Bend, IN · Member since 2015 · 30 posts · 26 votes
    8y

    @Roshan K.

    How good were the deals that you bought? I have a spreadsheet that I am analyzing every expense, 8% vacancy, 10% property management, actual tax bill from county, $200-250/year/unit in maintenance, $350/year/unit Capex/reserves, utility actuals from owner, etc..

    How did you structure your loans with your lender? I plan to buy at <70% of value, stabilize, and cash out refi with portfolio lender which will give me all my cash back. Hypothetically it could be perpetual if I structure everything correctly.. Obviously stuff happens so I'll have to come up with more cash at some point I'm sure.

    I do plan to continue working, I will be property managing flips for my cousin who wholesales/flips/buys and holds. I suppose I should say I'm building cashflow to live off of eventually, but I don't expect to never work again..

    @Brett Goldsmith

    Thanks for the input. I've be one of those people for the last 5 years who suffers from analysis paralysis, but now I find myself in a once in a lifetime position to start something big with no other commitments to hold me back. It's go big or go broke for me buddy.. That said I have studied for a long time with a focus on owning rentals, I also have family who own rentals to whom I can go for advice. I do appreciate the concern though. As far as reserves go see the above, and additionally after completing a refi I will likely set some of the returned cash into additional reserves per property.

    I've also read @Brandon Turner's The Book on Managing Rental Properties, sooooo I'm pretty much an expert! Haha jk..

    We have kind of digressed from my original post, but I welcome any further input such as potential roadblocks, setbacks etc

    1Reply
  • Brett Goldsmith
    Investor · Los Angeles, CA · Member since 2012 · 1k+ posts · 500 votes
    8y

    @Adam Boonzaayer Best of luck. You should speak to a few lenders to see if you would even be able to qualify to refinance out of a private money loan. Go talk to a local credit union or a portfolio lender. My experience tells me you may have challenges qualifying for a traditional refinance without a bankable individual involved. 

    2Reply
  • Mulumba Mathias
    Member since 2018 · 1 post · 1 vote
    8y

    Hi @Adam Boonzaayer instead of investing in the rentals, why not try #Lease Options. Like rentals, lease options create a monthly cash flow, its just that the cash flow is generally at least $200 per month higher than what is garnered with comparable rentals. With the higher monthly payments, your debt-to-income ratio will improve and this will increase your ability of financing new homes. however, with rentals, your credit will be maxed out after acquiring just a few properties which is not what you want, right??

    You also get to collect a nonrefundable down payment from lessees unlike with tenants in rentals. You also get to forget about property repairs as the tenant assumes all responsibility for repairs and improvements. You can save on tax too. 

    1Reply
  • Roshan K.Pro Member
    Oklahoma City, OK · Member since 2017 · 258 posts · 215 votes
    8y
    Originally posted by @Adam Boonzaayer:

    @Roshan K.

    How good were the deals that you bought? I have a spreadsheet that I am analyzing every expense, 8% vacancy, 10% property management, actual tax bill from county, $200-250/year/unit in maintenance, $350/year/unit Capex/reserves, utility actuals from owner, etc..

    How did you structure your loans with your lender? I plan to buy at <70% of value, stabilize, and cash out refi with portfolio lender which will give me all my cash back. Hypothetically it could be perpetual if I structure everything correctly.. Obviously stuff happens so I'll have to come up with more cash at some point I'm sure.

    I do plan to continue working, I will be property managing flips for my cousin who wholesales/flips/buys and holds. I suppose I should say I'm building cashflow to live off of eventually, but I don't expect to never work again..

    @Brett Goldsmith

    I think the deal is pretty good. It's 92K in gross rents a year when all the houses are rented. I did the same. I did all the expenses and everything to a T. Used the biggerpockets calculator too. It will work out, just that there were some big expenses in the beginning during the stabilization period that's holding me down. Can't wait to be breaking a profit soon.

    My loan was 15% down, 5 year fixed balloon on 20 year am.

    All I'm saying is that 100K is not a lot to invest if you want to live off of it. My best month I will make 3400 which while you can live off of, I don't think that will be enough personally.

    As far as your refi loans though, you're going to hit a big roadblock if you don't have a proven steady source of income. 

    You really aren't bankable. Just some thoughts to ponder. 

    Also, finding a deal like you mention is much easier said than done. My 100K that was burning my pockets took me 2.5 months to find somewhere to spend it lol, but because I was trying to buy at the right price.

    Wish you the best of luck!

    1Reply
  • Vandetta B.
    Redding, CA. · Member since 2018 · 6 posts · 0 votes
    8y

    Hello Adam, It sounds as if you have a wonderful support system in place to make your dreams come true. Have you thought of "house hacking" to start? Your family will have stability and you'll get your start in rental management. From there you could source your support system for OPM and/or start an LLC portfolio to use for loans? Would you be able to create a 1099 history to use for loans?

    I'm brand new to all this however I'm also looking to put my cash into building cash/wealth with real estate.  Thank you for the thread!

    0Reply
  • Adam Boonzaayer
    OP
    New to Real Estate · South Bend, IN · Member since 2015 · 30 posts · 26 votes
    8y

    @Roshan K. @Brett Goldsmith

    So I was thinking that with the amount of cash I will have, at least for the first couple deals, that a bank would see that as sufficient reserves to issue a couple asset based loans. I do have access to W2 income history through my wife. She has worked as an RN for the last 2 years making 45k and when we bought our primary we were approved for up to 250k off her income alone (thankfully we aren't stupid enough to have spent that much). I have had 2 different jobs, 6 months of schooling, and 6 months of full time rehab within the last 2 years so that is why I think I wouldn't qualify for a loan. As far as my wife's income goes, like I said in the original post she will be taking a part time nursing job, taking over for her aunt at our small town clinic on MWF, and helping out with family and our future investments on her off days. However she will still be making 25+/hr until after our first kid so we probably could use that income to qualify. I just wanted to know what it would look like with ASSET BASED loans, we will not be trying to get a fannie or freddie loan. And like I said we both have credit scores over 750 and excellent repayment history and will have NO debt. 

    I realize I may have made it sound like W2 jobs are the worst thing ever, to me that might be true but I have no issue with anyone that holds one and don't think anything less of them. After we relocate I will be filling my time that isn't spent buying/selling/landlording with project managing/partnering with my cousin who wholesales and flips. I'll probably end up swinging a hammer a lot of days too. 

    I will be reaching out to local banks/credit unions in the area very soon. I'll keep everyone posted on how things work out.

    0Reply
  • Adam Boonzaayer
    OP
    New to Real Estate · South Bend, IN · Member since 2015 · 30 posts · 26 votes
    8y

    @Vandetta B.

    We will likely occupy a unit in one of the first properties that we purchase, although the issue of the loan requirements for that set up may be a topic for another thread. We have a couple off market leads that will consider land contract, just have to make sure we satisfy dod frank when purchasing LC and owner occupying.

    1Reply
  • Vandetta B.
    Redding, CA. · Member since 2018 · 6 posts · 0 votes
    8y

    @Adam Boonzaayer ....oh boy I had to google "LC" and "DF" . I certainly have a lot to learn and thanks for that tidbit. Yes, maybe a new thread would be in order for the LLC and 1099 possibilities...? or does someone just respond here? I'll lay low and see what the protocol is. ;-)

    0Reply
  • Adam Boonzaayer
    OP
    New to Real Estate · South Bend, IN · Member since 2015 · 30 posts · 26 votes
    8y

    @Vandetta B. as far as the "LLC portfolio" goes are you referring to the strategy I linked to in my original post? For myself in particular I don't have any 1099 income to use to as a qualifier for a loan. And I'm not sure what length of 1099 income banks like to see for a conventional loan, I think 2 years though? Someone correct me if I'm wrong.

    0Reply
  • Angelo Mart
    Professional · Parsippany, NJ · Member since 2013 · 384 posts · 262 votes
    8y

    You are in a strong position and good area to invest. Purchase distressed Multi-Family homes with hard money leverage what you have. Repair them, rent them out (Might want to use Manager) than refinance with a portfolio lender or Commercial lender that is Asset Based on Cash Flow and Equity. I can connect you with a great lender I use here in NJ that is actually based out of the Midwest They underwrite the property not the borrower (No w2 needed)

    2Reply
  • Vandetta B.
    Redding, CA. · Member since 2018 · 6 posts · 0 votes
    8y

    @Adam Boonzaayer, gosh ok, did I mention I'm a newbie? I was thinking LLC might give you more purchasing power but I guess you might have to have something of value in an LLC to begin with. So that might be something to get started on sooner than later at the least? Trying to make up for my ignorance. ;-)

    As far as 1099 length I would think it would depend on the lenders requirements.  My friend in Nevada needed two years to qualify for a rural house as a self employed person but I would think there are different lenders for different types of properties.

    @Angelo Mart  I like your suggestions about  asset/equity based lenders.  Is that something a person can find in the "yellow pages" so to speak or would one need to go through some sort of broker or....?  I'm on the west coast but would like to investigate such an opportunity for myself....if that's ok to do on someone elses thread....?

    0Reply
  • Dustin Lauer
    Lender · Orlando, FL · Member since 2016 · 340 posts · 115 votes
    8y

    @Adam

    @Adam Boonzaayer it's no problem at all to cash out refi long term without income verification.  I've done a couple hundred loans similarly.  Used to be necessary to stay under 5 units for refinancing, but there is even capital there now for long term refinancing with out income verification.  (Also it's okay to not have land lording experience to refinance - just less options and probably a good idea to get property 3rd party management on the 1st one).  Congrats on selling your house.

    0Reply
  • Dustin Lauer
    Lender · Orlando, FL · Member since 2016 · 340 posts · 115 votes
    8y

    you'll probably need a local Indy bank to finance you if you want to live in one of the units, and that would be a more difficult loan.  Possibly buy only for investment purposes and just rent where you live.  I know that's not the Rich Dad Poor Dad school of thought, but often (especially in stable flat growth markets - many today in 2018) buying a residence is not often any kind of investment (just a big liability).  I'm considering selling mine for example after finishing some remodeling, and if I didn't find a total steal I might not buy another one.

    @Adam Boonzaayer

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    8y
    Originally posted by @Roshan K.:
    Originally posted by @Brett Goldsmith:

    You may want to start off buying one duplex or triplex below market value to get the hang out being a landlord. Being a landlord tends to cost more than one thinks. I'd be careful about over leveraging without being a very high income earner or having substantial reserves. This is how people find themselves in a very unfavorable position. For example I had 3 AC's break last month, a tenant that had to be evicted, and had to remodel two units to become rent ready. 

     In my experience, albeit short experience, it always seems things go wrong all at once or not at all

     I got my first rental 20 years ago and in my experience, I totally agree. Real estate is filled with highs and lows, but over time you will never regret jumping in.

    3Reply
  • Todd Dexheimer
    Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
    8y

    @Adam Boonzaayer first thing that you need to do is to create a detailed plan of action, written down and then take that to your local banks. Ask for the commercial RE lender when you call. If they are warm to your plan, then set up a meeting and get a commitment from them on what they will lend. Make sure you do this enough to get at least 5 banks on your side. You will get plenty of no's and a few yeses. Tell them you will be buying and renovating and will have equity in the properties, so you would like to be financed based on the appraised value. 

    You have been told to buy cash, but you can also often times get a construction loan. If they won't base the loan on appraised value, then finance it with them and 6 months later, take it to one of the other banks to refi. 

    Now, for the apartment purchase. The larger building that you purchase, the easier it will be to get financing. Hire a 3rd party PM if you need that for credibility and then fire them and take over after a year. 

    Your wife has income now and it sounds like you have income working for your own company. I got a ton of loans as a school teacher and then self-employed during the worst lending environment. I think you need a paradigm shift.

    2Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    8y

    @Adam Boonzaayer keep in mind that from a banks perspective, $100K isn't really considerable assets. With your wife working part time and no reliable income from you, that $100K may not go very far (in the banks mind). My friend is a small contractor and had the same issue with getting loans. His wife took a year off and their taxable income decreased, which caused the bank to pull back on approving more loans. 

    Indianapolis is a pretty good market for lower cost rental homes. My guess is you could pay cash for 3-4 and get started pretty easily. Once you own the properties and have them income producing, they could be used to secure financing to buy more. 

    As others suggested, talk to several local banks and see what options they have. Smaller banks work off approval from a loan committee, so if they have a "good feeling" about you and your prospects, they may be willing to take a chance on you.

    1Reply
  • Patrick Soukup
    Rental Property Investor · Fort Collins, CO · Member since 2015 · 273 posts · 127 votes
    8y

    "Go big or go home" is something I read earlier in your thread. Why? You have $100k. You said you were making $35k/year and your wife making $45k/year. Without this large influx of cash it'd take you 10+ years saving 10% of your annual income to get to that amount and you're willing to gamble on a go big or go home mentality? Real estate is IMO is about compounding your revenue. There are many ways to do this, but why not figure out how to build wealth not just look for a home run?

    3Reply
  • Daryl Winters
    Chicago, IL · Member since 2016 · 5 posts · 3 votes
    8y

    Adam, congrats on the debt relief! I have several thoughts that I hope help you process. I am a broker in the Chicagoland area working with professionals on a daily basis and have also rehabbed a property or two myself, just to give you my credentials. 

    I recommend that first, you and your wife take out an FHA 203k loan. That is a loan that will enable you to buy a property in slight disarray, and fix it up (203k loan portion). You'll have to live in it for at least a year, but you'll only have to put approximately 3.5% down, thus keeping the majority of your 100k. By doing this first, if you and your wife are ready to move in one year, you'll be able to with some equity built in yet again. If the property you buy is a multi unit (i think fha has to be under 4 units though), when you do move out, you'll be able to create cash flow and have a fully operating multi unit there. If it's a single family, you could still rent or sell for the equity if it's improved enough. There are a lot of different options, so don't box yourself in. Do your research on location and it could pay off nicely, with decent equity or rent after repairs +year. This route, you also avoid hard money with your first step in case you need it in the future. 

    Second, I'd recommend while in your "first phase", you can take your time and shop around for a solid deal. You'll want to look for a multi-unit that has decent rents or lower rents that can be easily upped w/ minor repairs. Vacant is better so you don't have to wait to do the work. Look for at least a 1% return on a month's worth of rent as good barometer of whether or not a property is valuable though there are other factors as well. If more than 1%, it could be a great opportunity. As you build equity, so will you build cash flow with the opportunity. You could also continue to use FHA to keep only using that 3.5% though you'd have to refinance at the end of each first year to convert it to a conventional loan which could help spread your money. This is obviously a bit more time consuming, a property per year, but also may help in your management of properties.

    2Reply
  • Sean Gribbons
    Flipper/Rehabber · Denver, CO · Member since 2015 · 134 posts · 61 votes
    8y

    Congrats on the sale of your property that's awesome.

    I honestly think your best bet would be to get a w-2 job and invest on the side so you can qualify for more of a "typical" loan which would require less down and have much much better terms than hard money. If qualifying is the issue then why not look to pick up owner carry deals. Of course its a lot more grind but its very possible and you would be financed through the owner of the property who will probably have less strict lending criteria than most banks. You could also look to find a line of credit using that money down. 

    Personally though if it was me I would find a partner who can qualify and go 50/50 on a large multifamily unit. It wont burn all your time, many argue less risk, and everything's under one roof. Plus you could live there and work act as the property manager to save $$. 

    Why not find a partner and look for bigger deals with less risk!?

    10X it! 

    My two cents

    0Reply
  • Jaime Garza
    Little Elm, TX · Member since 2018 · 10 posts · 0 votes
    8y
    Originally posted by @Roshan K.:
    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.

    @roshan K, The 8 properties you purchased, were they SFR? or were any Multis? I am about to get some cash from selling a home and have mutiple stock options vesting soon. I am would like to look into a portfolio loan buy multiple properties as well. Would you mind listing the terms you received on that portfolio loan and what the requirements were, timing?

    My other idea is to start a MHP and rent out space, buy MH and do owner financing on them. I thought this would be a great way to have very passive income. 

    0Reply
  • Kerry Boyle
    Lender · Bethesda MD · Member since 2017 · 283 posts · 123 votes
    8y
    Originally posted by @Account Closed:

    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.

     LOL

    2Reply
  • Bob Floss II
    Attorney · Northbrook, IL · Member since 2017 · 719 posts · 549 votes
    8y

    @Adam Boonzaayer We don't make mistakes, just happy little accidents.

    2Reply
  • Gary Barella
    Flipper/Rehabber · East Brunswick, NJ · Member since 2018 · 64 posts · 152 votes
    8y
    You’re doing the classic newbie mistake by getting caught up in the “what if’s” and the “how’s”… Just go out there and do your first one, you’ll be surprise how much ******** you have to go through but then as you keep going it gets easier and easier and you meet more and more people and then lenders and (potential) partners will be calling you begging to finance your next deal. Overcome the fear with swift action my friend.
    2Reply
  • Angelo Mart
    Professional · Parsippany, NJ · Member since 2013 · 384 posts · 262 votes
    8y
    Originally posted by @Vandetta B.:

    @Adam Boonzaayer, gosh ok, did I mention I'm a newbie? I was thinking LLC might give you more purchasing power but I guess you might have to have something of value in an LLC to begin with. So that might be something to get started on sooner than later at the least? Trying to make up for my ignorance. ;-)

    As far as 1099 length I would think it would depend on the lenders requirements.  My friend in Nevada needed two years to qualify for a rural house as a self employed person but I would think there are different lenders for different types of properties.

    @Angelo Mart  I like your suggestions about  asset/equity based lenders.  Is that something a person can find in the "yellow pages" so to speak or would one need to go through some sort of broker or....?  I'm on the west coast but would like to investigate such an opportunity for myself....if that's ok to do on someone elses thread....?

    Tons of them on Google. Google Rental property loans or investment property loans. If you inbox me I can give you my lender

    0Reply
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