I'm a Newbie Trying to Figure out The Next Step!

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I'm a Newbie Trying to Figure out The Next Step!

Azita S.
Investor · Member since 2013 · 56 posts · 52 votes

Hi Everyone,

I consider myself a newbie because the more I learn about REI, the more I realize that I need to learn more!

I currently own 2 grade B SFH rentals in the Phoniex AZ and my primary residence in Portland OR. All 3 have mortgages and equity due to significant appreciation over the last few years. I recently took out $100K HELOC on my primary residence for remodeling and also sold 4 grade D duplexes that I owned out right! The funds have been sitting in a CD while I do my research on my next step.

Option 1 - use the $$ from the sale to payoff the HELOC

Option 2 - use the $$ from the sale and leverage the equity in the other properties to buy more investment properties.

After being burnt and losing $$ on grade D duplexes in Milwaukee, WI and having great appreciation and return on grade B SFH in AZ, I have decided to stick with buy and hold grade B SFH in the $100-150K range.

I've been studying markets like Orlando, Cincinnati and Indy where you can still find turn key SFH for under $150K with rents ranging $1200-$1500. I can tolerate minor repairs like new flooring and a fresh coat of paint, but don't want the hassle of managing a rehab long distance which I have done once in the past successfully with the right team, but would rather stay away from!

My HELOC payment currently is $522 , so if I could buy $100K property with even 5% return, it would cover the HELOC payment. and if I cashed out the equity in other properties, the returns would cover the increase in the mortgage payment. Once I know the properties are stable and generating cash flow, refinance and purchase more.

I'm more interested in appreciation and depreciation write off than creating cash flow. I just need the return covering all the expenses. My ultimate goal is to do a 1031 exchange for a commercial building in Portland.

My biggest fear is having low return and not being able to make the payments on all the mortgages especially my primary residence!

I would love to hear what Pros would say about my plan.

All feedback, constructive criticism and advice is welcomed. I'm here to learn!

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Heshel Mangel
Member since 2018 · 208 posts · 90 votes
6y

@Azita S. You are way ahead of the game relative to most on this site, so pat yourself on the back and be proud of your accomplishments thus far. I am a local investor here in Cincinnati and would be happy to help you execute your plan on properties here. You are definitely correct, than you can buy solid B class SFH in the 100-150k range that will cashflow nicely and also appreciate over time, aside from the depreciation tax benefit.

Let me know if I can assist in any way!

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  • Jonathan Lyford
    Member since 2019 · 56 posts · 53 votes
    6y
    "My biggest fear is having low return and not being able to make the payments on all the mortgages especially my primary residence!" You kind of answered your own question :) If you are worried about that, than overleveraging yourself could result in you losing your primary residence if you can't cover all the payments. I would pay off the HELOC, so that my house isn't up as collateral if things go wrong. Grow a little but more slowly, but also be able to sleep at night. Also, hang on to a chunk of money as cash reserves so you're covered if things don't go right. just my two cents.
    1Reply
  • Heshel Mangel
    Member since 2018 · 208 posts · 90 votes
    6y

    @Azita S. You are way ahead of the game relative to most on this site, so pat yourself on the back and be proud of your accomplishments thus far. I am a local investor here in Cincinnati and would be happy to help you execute your plan on properties here. You are definitely correct, than you can buy solid B class SFH in the 100-150k range that will cashflow nicely and also appreciate over time, aside from the depreciation tax benefit.

    Let me know if I can assist in any way!

    2Reply
  • Azita S.
    OP
    Investor · Member since 2013 · 56 posts · 52 votes
    6y

    @Heshel Mangel

    Thank you!  Which neighborhood would you say has the most potential for appreciation? up and coming neighborhoods that are grade B now, but will become grade A in the next 5 yrs! 

    I'll send you a connection request to stay in touch as I continue my research. 

    1Reply
  • Azita S.
    OP
    Investor · Member since 2013 · 56 posts · 52 votes
    6y

    @Jonathan Lyford

    Thank you for the advice!

    0Reply
  • Heshel Mangel
    Member since 2018 · 208 posts · 90 votes
    6y

    @Azita S. I won't claim to know the future so I can't really predict that, but any solid B area that is close to downtown and has a good school demand will attract jobs and families - the drivers of appreciation.

    I would agree that if you feel you are spreading too thin and are putting your primary residence at risk, you should slow it down.

    2Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    6y

    @Azita S.

    I would be a little more bullish.

    You are paying 5% on a $100,000 balance which I would consider cheap cost of borrowing money.

    $100,000 should be able to get you about 2-3 houses in the $100,000 - $150,000 range considering 20% down and closing costs and maybe a small paint and touch-up budget.

    You have experience with B class markets and have been doing well.

    [email protected]917-280-8544
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    2Reply
  • Cassi Justiz
    Rental Property Investor · Edmond, OK · Member since 2017 · 1k+ posts · 1k+ votes
    6y

    From reading your original post, I think you would probably feel a little better knowing that your HELOC is paid off in case of a downturn. Also, HELOC does count towards your debt to income ratio so having that heloc may actually make it more difficult to qualify for additional properties.

    If I were in your position, I would get the HELOC paid off first. Even if it is cheap money, you don't want something to happen that causes you to be in a position where the primary residence is put at risk to cover rental property. Once the heloc is paid off, you could consider refinancing the rentals to tap into that equity.

    I personally wouldn't buy for appreciation and depreciation because at the end of the day, the cashflow is what pays the bills and allows you to build reserves. 

    0Reply
  • Peter Jakonovisky
    Member since 2019 · 9 posts · 1 vote
    6y

    I agree with @Bassit Saddiqi , but may be do only one 1-2 properties and keep 60K powder dry or payoff HELOC. I think with leverage, you may get to 8-10% cash on cash return with B+ or higher grade SFH. If it is less than 8%, the risk is not worth it as you are paying 5% on your HELOC.

    1Reply
  • Azita S.
    OP
    Investor · Member since 2013 · 56 posts · 52 votes
    6y

    @Basit Siddiqi

    Only if I qualify for 2-3 loans.  I guess I would have to apply to see if I can get qualified.  I do have large student loans that always work against me when it comes to income to debt ratio. 

    0Reply
  • Azita S.
    OP
    Investor · Member since 2013 · 56 posts · 52 votes
    6y

    @Cassi Justiz

    I think that's what I will end up doing. Not leveraging my primary residence in case of a down time. I have enough equity in the SFH rentals to leverage for purchase of additional properties.

    0Reply
  • Slocomb Reed
    Real Estate Agent · Cincinnati, OH · Member since 2014 · 170 posts · 102 votes
    6y

    @Azita S. it sounds like you're in a position where a lot of investors decide to scale up their portfolio. Have you considered taking the proceeds from these sales, to buy one or two bigger better-cashflowing properties?

    Last year I went form my largest property being a 4-unit to being a 24-unit, and that has been a game-changer. I still own several 1-4 unit properties but soon I'll be looking to trade them into larger properties. Easier to manage (I'm local to Cincy and self-manage) and easier to cashflow than a lot of smaller spread-out properties.

    1Reply
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