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 @Jaime Garza:
    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. 

     They were 6 SFRs and 1 duplex. 15% down, 5 year fixed on a 20 year am. 

    0Reply
  • Roshan K.Pro Member
    Oklahoma City, OK · Member since 2017 · 258 posts · 215 votes
    8y
    Originally posted by @Adam Boonzaayer:

    @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.

    Your wife may have to be a cosignor on the loans. 

    Word to the wise: Lots of banks want your money. When it comes to loans, they say yes first, then do their due diligence after. Which means that sometimes you get a nasty surprise of not getting the loan due to underwriting denying it. The takeaway here is to get the commitment letter first before you stop shopping around.

    2Reply
  • Josh Collins
    Investor · Woodbury, MN · Member since 2016 · 90 posts · 72 votes
    8y

    @Adam Boonzaayer

    @Gary Barella said it perfectly.  I get this feeling that you're worrying about the finish line before you lace up your shoes.  This is good, but it feels like an excuse not to get started.  It sounds like you have a game plan and a way to source deals, so get started.  The best part is that you'll figure out if this is truly a sustainable plan and whether it's as easy as you think.  Also, I'm with others on here that say Banks will being tripping over themselves to fund your deals if you put together a solid track record.  It seems to me (but I could be wrong) that the grand plan could scare away lenders who don't feel comfortable with whether or not you can actually pull it off.  Plus, I keep hearing that you can qualify for conventional loans on up to 10 properties before you need to consider commercial lending.  

    Good luck.  I can't wait to see your follow-up thread a year from now!  

    0Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    8y

    @Adam Boonzaayer You don't have to be a W2 employee to qualify for conventional financing as long as you can document your income and have been in the same line of work for 2 years. Before ruling it out, I would talk to some lenders and see if you can quality. 

    1Reply
  • Adam Boonzaayer
    OP
    New to Real Estate · South Bend, IN · Member since 2015 · 30 posts · 26 votes
    8y

    Awesome info from a ton of people! Thanks everybody!

    @Gary Barella @Josh Collins I know I have been/am being overly cautious and should dive right in, but I made this post so that I could figure out the right strategy (foundation if you will) for my investing future. I know mistakes will be made but I'd like to avoid the big ones that would set me back substantially in the future. I want to create a sustainable system that will allow me to repeat successes predictably (or as much as possible). I just looked at a triplex this morning with value add potential for 2 addional unit in the basement (although I will purchase on the #'s from the 3 existing units), and I am looking at 2 other properties tomorrow.

    @Todd Dexheimer Excellent advice sir, and my paradigm is a-shifting that's for sure. Over the last couple days as I've been analyzing deals I've asked myself more than once "what do I actually want out of these deals?" At first what I looking for primarily was $100/door cashflow and seller financing, but now I'm far more interested in finding deals at that I can purchase/rehab for 70% of value so that I can refi and take all my cash back out. Thus cashflow doesn't matter as much since I will not be limited (at least by available cash) on the number of deals I can do in the near future, although I'm still shooting for $100+ in cashflow.

    @Patrick Soukup Out of this entire discussion the one thing you chose to dissect was my choice of idiom? I hope you don't do the same with others, it's not very helpful.. 

    @Daryl Winters Nice first post! Haha and some good advice. We have been thinking more about getting one single family to live in, not sure how it would be living with tenants we enjoy our privacy.. So a 203K loan may be an avenue we consider if we can find the right deal. I have been looking for rents around the 2% of purchase range.

    @Bob Floss II Words to live by from the afro artist himself!

    @Dustin Lauer That is awesome to hear! When you say long term refinancing what exactly do you mean? And I know, everything is going to be bank specific.. But I would like to set my expectations now so that when I do reach out to banks I can ask for what I know to be reasonable, instead of going in and asking "what can I get?" I can go in and say "this is what I want." After all, they are in the business of lending right?

    Another reason that I want to get as many properties as I can right now is because, as we all know, mortgage interest rates are on the rise.. Ideally I'd like to buy with cash&hard money, then refi to a fixed rate 30 year loan with no balloon. Or does that not happen with investment properties?

    1Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    8y

    You won't be able to get an FHA loan or a fixed 30 year with no balloon without the job/tax-returns.

    Commercial/portfolio terms will be less favorable than your typical Fannie/Freddie conventional loan.

    1Reply
  • Adam Boonzaayer
    OP
    New to Real Estate · South Bend, IN · Member since 2015 · 30 posts · 26 votes
    8y

    @Brian Garrett What do investors typically do after the balloon period then? Refi again?

    0Reply
  • Josh Collins
    Investor · Woodbury, MN · Member since 2016 · 90 posts · 72 votes
    8y

    @Adam Boonzaayer

    I'm going to stick up for @Patrick Soukup a little in that I think he was just taking your direct quote and hoping that you don't try to hit a home run on your first swing.   Maybe he could have elaborated more but in the end, I think a lot of people have added a lot of good ideas that he may have decided not to repeat.  I like to think that most people on here would love to see you succeed and those who are doing know it can be a struggle to do two BRRRRs in a year let along 30 units worth.  With that said, I like (what seems like) a little fire so this is good.  

    I too am one of the "take it slow" crowd, but what do I know?  I feel like one of those signs at hiking trails that says you can expect the hike to take 3 hours and you're back at your car in 45 minutes.  The learning curve is steep at the beginning and those on BP probably just want to see you succeed.  If not, ignore them and do it your way!  Me included.  Haha.  

    0Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    8y

    @Adam Boonzaayer Yes their plan is to either exit or refinance before the balloon is due.

    0Reply
  • Patrick Soukup
    Rental Property Investor · Fort Collins, CO · Member since 2015 · 273 posts · 127 votes
    8y

    Thanks @Josh Collins - I just don't think Real Estate is a get rich quick scheme and going into it with that mentality can get people in trouble. It is absolutely possible to hit home runs and when you do, it is a ton of fun!

    @Adam Boonzaayer - I think that you making $100k on the sale of your house is HUGE! In fact, that is how I got my start. I made $60k. I took that $60k and invested into a duplex and 2 4-plexes. I bought a 4-plex in May, and the other 2 multi families that same year in September and October. I was a 33% partner in the 10 units. That $60k is now worth $280k. I'm sorry if it came off as unhelpful advice, but hit for percentage and RBI's and the home runs will come. Some times by accident (your house is a prime example - I bet you didn't plan on making $100k when you bought the place! Great job!). I think real estate is a GREAT vehicle to generate wealth and I wish you all the luck in the world.

    1Reply
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