Advice For Financing Strategy: 5 year Plan

5 Replies

Hello BP!

Thank you for the template pinned to the top of this forum. 

Financing scenario/question template

Your goals and story: I am looking to start accelerating my RE investing in my last 3 years in the military with the goal of going full time REI in the next 3-5 years. We currently own 1 x 4plex in Colorado Springs that we bought with FHA loan in 2012 and house hacked that is a cash flow machine and has appreciated significantly. We want to buy 2 x 4plexes between now and the end of 2022 (probably in Colorado, but considering learning out of state). We are lucky to have pretty good equity positions in our 4plex and primary, 1 of 2 VA loans available, and a fairly diverse set of retirement supports (3 years from drawing military pension, mutual funds/TSP/ROTH savings, and our 4plex).

The problems I am trying to solve: 

I need some help to figure out a long term financing strategy to maximize the assets I have to buy more MF properties over the next 3-5 years while I have my W2 income. My wife is a realtor with two years of commissions history.

Challenge: We have lots of equity, but not lots  of cash outside of our retirement accounts.

Type of property: 2022 : 2 x  4plex ($600K -$1M), 2023: 3 x 4plex, 2024: 3 x 4plex (this will bring us to 10 mortgages): 2025: 8-12 unit apartment building

Location of property: Colorado in El Paso County (Colorado Springs), the Metro Denver Area (Aurora, Parker, Lakewood), or Weld County, Colorado. 

Purpose of financing: Purchases: Want to access as much equity from current 4plex as possible for down payments.

Type of financing sought: Not Sure what makes most sense. My current plan: 1. HELOC of approximately $400K to use for down payment on purchases. 2. Investment Loans (My family is not likely to want to house hack during this period after 6 moves in 8 years. 3. Possibly consider moving some retirement accounts into self directed. 4. Transition to apartments with commercial loans. Any suggestions or questions are welcome.

However I am not sure what people do to keep cycling cash back to HELOC for future purchases and then to exit the HELOC. Do you just direct cash flows to the HELOC? Do you refi after trying to force appreciation? Sell something to cover? Just pick up that payment? What is the best exit plan for the HELOC at the end?

Current or prior ownership of real estate: Currently own 4plex in Colorado Springs, purchased in 2012 with 13500 downpayment on FHA loan and lived there for two years. Bought off market, cash flows over $2000 per month after all expenses, market value $950K+, 30 year loan with $300K owed (refined immediately to drop PMI). Owned one SFH near Charlotte, NC 2008-2018 rented with property manager and sold to tenant thru lawyer in 2018 to purchase primary residence. Bought primary residence in 2018 and have approx. $180K of equity in 30 year VA loan. Have owned/sold 2 other primary residences in GA and CO.

Income Source: Salaried W2 (My  military), 1099 independent contractor (wife realtor,  third year),  rental income approx $48-50K year but cash flowing about  $2K month.

Monthly debt obligations appearing on credit report, plus (if applicable) personal rent and alimony/child support/etc: $ One  car payment of 350 per month, 2840 personal rent, 

FICO: Right at 800, some over some say high 790s

Credit issues: none.

Thank you for any advice or questions. The BP community was hugely helpful when we purchased our first 4plex and we wouldn't have been able to do it without you!

@Russ McKelvey Thanks for sharing your story. It looks like you and your family are in a strong financial position and in a good spot to grow into the multifamily space and get some bigger deals! 

Have you considered using private money to fund these bigger deals? You could leverage OPM (other people's money) and not have to worry about tapping into your equity, while providing value to others in the form of interest payments. THere are lots of folks out there with lots of capital who want to invest in real estate but without the knowledge and/or time to put the money into a good investment. That's where you come in!

You could also tap into your Roth and do a self-directed IRA to invest in other deals.

Do you know @Stuart Grazier ? He's a military guy also located in Colorado Springs. He would be a good guy to meet up with and chat about your situation. Are you in a mastermind group yet? I joined one with all military folks and veterans about a year and a half ago and its been hugely beneficial for my personal growth and real estate growth. 

I'm always eager to connect with fellow military folks involved in real estate, so don't hesitate to reach out! Best of luck and keep us updated on your journey. 

@Douglas Spence. 

Thanks for the reply. I have not explored private money as an option yet, but am reading a lot about it right now. I want the  confidence of knowing I have been successful on a small apartment before feeling okay with asking others to  take the risk alongside me. That said, I know will have to get over that at  some point, but  maybe once I leave the military and  have more time. ROTH is a good option but  I like the diversity of my retirement assets for now.  

The more I have been reading, the more I am considering selling the 4plex and trying to do a 1031 into small apartment with the full proceeds because the biggest HELOCs on Investment Properties I have found after 26 calls is $250K. I am just concerned about  trying to make the 1031 timeline work for an asset type I haven't worked  with before. I have been some good  commercial lending referrals, but  now looking for property managers with small apartment  experience here in Colorado.

Thanks for the shout out to @Stuart Grazier I will try to connect.

BTW I like the Honor and Equity branding you have, Would love to  connect and hear what you do? 

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@Russ McKelvey Force appreciation and refinance as mentioned. This is by far the easiest if not only way to recover HELOC funds. Similar to a BRRRR, you need to raise value enough to exit HELOC equity. For larger apartments, years 2-3 are where this occurs if at all.

@Russ McKelvey Sounds good let's do it! Regarding private money, think if it in this context: you are giving people in your network the OPPORTUNITY to earn more money by giving them the chance to invest with you. People in your network probably trust you more than you realize. Good luck!