Hello all, just a quick introduction. New to real estate investments. Closing a deal in suburbs of Texas. Took out HELOC from my home in California and was able to pay cash for a home in Houston. Maybe not the best approach, but would like everyone's feedback. Thinking of doing the same cycle again in April of 2022.
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
5y
Texas, including Houston is a great market for single family rentals.
Paying cash used from a HELOC is not a bad way to buy, but it is a bad way to hold property. There are a number of reasons but most significantly is you are not getting the full interest deduction you would have if the loan was against the rent property. Because of this, you will pay more taxes than if you had a mortgage on the property. Paid-in-full properties are also targets for lawsuits.
Put a mortgage on this thing, pay down your HELOC, and then go buy another.
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
5y
Texas, including Houston is a great market for single family rentals.
Paying cash used from a HELOC is not a bad way to buy, but it is a bad way to hold property. There are a number of reasons but most significantly is you are not getting the full interest deduction you would have if the loan was against the rent property. Because of this, you will pay more taxes than if you had a mortgage on the property. Paid-in-full properties are also targets for lawsuits.
Put a mortgage on this thing, pay down your HELOC, and then go buy another.
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
5y
@Dhiren Ahir If someone goes to a lawyer with a lawsuit such as a slip & fall, they will assess the ease with which they can extract money from that opportunity. The easiest money is from the insurance company. They will go after whatever liability coverage is there.
If they think they can get more, the next thing they will look at is the equity in the property. This is the second easiest thing to attack. There are tons of databases that can provide those lawyers details on the existing mortgages. If you have paid cash for the property, you have 100% equity in the deal and are a nice juicy target. If there is a 75% mortgage, the property is not nearly as interesting to the ambulance chaser.
Liability aside, a 100% paid-in-full rent property is a very poor investment choice. Four rent properties with a 75% mortgage provides much greater return, at less investment risk, than one property owned debt-free.
@Greg Scott I ran the numbers, to the best of my ability that showed that a HELOC was better than a mortgage. However, I do not believe my models included any tax returns. If you or anyone have a good resource or calculator on this, I would greatly appreciate it (hope I didn't break any rules with that statement) In the past written off all of the HELOC interest, but that was typically what I had used for upgrades and repairs on my primary residence.
Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
5y
@Dhiren Ahir, not to me. We are going wide, before we go deep. There is no tax advantage to paying off a house. Having debt is a great strategy in an inflationary time, as we pay off the debt with future devalued dollars. The tenants pay the debt. Currently, we are a historic lows…keeping those low rates for 30 years turns the debt into a benefit. It is a good time to sell losers, take some money for a few more rental houses, future repairs, and set aside remaining funds for the future.
Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
5y
@Dhiren Ahir, It is just an idea…do what works for you! My original plan was to save up to get 5 with mortgages, and use the debt snowball to pay the debt off. It worked well and I recommend it. Then 5 more, and pay them off.
New to Real Estate · Dallas- · Member since 2021 · 23 posts · 6 votes
5y
@Kerry Baird thats what my plan is. Closing my 3rd turnkey rental soon. Have over 60 %equity in 1 st and 40% on 2nd, putting 25% down for 3rd. Plan is to payoff 1st before taking more leverage.
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Hello all, just a quick introduction. New to real estate investments. Closing a deal in suburbs of Texas. Took out HELOC from my home in California and was able to pay cash for a home in Houston. Maybe not the best approach, but would like everyone's feedback. Thinking of doing the same cycle again in April of 2022.
Hello all, just a quick introduction. New to real estate investments. Closing a deal in suburbs of Texas. Took out HELOC from my home in California and was able to pay cash for a home in Houston. Maybe not the best approach, but would like everyone's feedback. Thinking of doing the same cycle again in April of 2022.