Renting vs. Wholesaling

10 Replies

Hello All,

I have owned a duplex since December 2013. This property has generated profit for me consistently for 6 months. I had repair issues and tenants issue but the new tenants are section 8 and I have not had any problems to date. My question is now that I believe the rough road is behind me I am ready to purchase another property. But I do not have the capital to do so. Are there any banks and or investors whom will use my property collateral thus finance the new potential purchase of at least the down payment? Or should I flip some deals to gain capital then purchase a new property with those funds? If your suggestion is the flipping route then please help me figuring that process out. I watched enough reality shows to say I know the basis but not enough to go out there to do myself. At your earliest please give me your feedback. Thank you in advance for your time.

Regards,

To adequately answer your first question you will need to provide us some numbers on your duplex.  Is there significant equity that you could tap into?  Otherwise, you will not be able to use the investment as collateral.

If you do not have much equity in the duplex and would like to consider flipping a house, I highly recommend J. Scotts book on flipping houses.  It's published by biggerpockets and its the best practical guide to flipping that I've found.

That being said, because you have little capital to work with, you will need to find an incredible flip deal.  You will need to borrow money from other investors or from a hard money lender which will cost you a lot in interest.  You will just need to factor this in as an expense when you run your calculations on the flip.  If you can still profit with the added expense of short term loan interest - make it happen!

@Duriel Taylor  if your duplex is owned free and clear then the simplest way to get the capital for the next down payment is a cash out refi. Plenty of lenders, including your regular big banks will do this if the property is in good shape and you have decent credit. 

If you can't do that, then wholesaling is a great option. So is getting your RE license and brokering some deals! 

I see you're local, so feel free to hit me up if you have any other questions. Good luck!

@Jeff Arndt  

Thank you for your prompt feedback. The investment I purchase has no equity nor do I own it out right. I financed it for $153k and my monthly mortgage is $1,100; the tenants pay me $900 each so my profit is $600 per month which include the water bill as well. I will look for the  J. Scotts book on flipping houses book you mentioned via Amazon. Furthermore if you can refer any and all private investors I would greatly appreciate it. I do not mind paying a high interest rate as long I am making a profit, even if its a few dollars I do not mind, I can pay that lender(s) and or private investor(s) off. I thank you so much for your feedback again. Take care and enjoy your day.

Regards,

@Chris Kennedy  

Thank you for your feedback. Unfortunately I do not own my property free and clear; I have a mortgage on it. I have been paying on time since December 2013. Currently I am enrolled at FIU seeking my master's in Communications (PR) and marketing thus ideally I do not have adequate time to donate towards a RE license. I was hoping to learn the "flipping" "wholesaling" world make deals and use the profit to buy more rental/investment properties. We should meet up to discuss mutual business opportunities. I look forward to hearing from you soon.

Regards,   

Search for "house hacking." Perhaps you can get into your next multifamily (up to 4 unit) place as an owner occupant, which will enable you to get in with a smaller down payment.  Tenants pay rent for your other units, and you save up for the next property.  Also, the rental income for the property you mention would be "counted" by my banker as steady income when you have filed two years of tax returns on it. So the income won't necessarily help you with a new place.  I have used tax returns, bonus payments from military service, inheritance, and mutual funds to finance houses.  And then I got more creative and did marketing to people in distressed properties or situations.  

@Kerry Baird  

Thank you so much for the feedback. Let me ask; after the second year of my tax return would I then be considered by your firm for financing options? Also when you mentioned the "house hacking" should I search on this site or another site/google? I look forward to hearing from you soon. Thank you in advance.

Regards,

After filing that second tax return my lender will count the rental income as stable, steady income.  Having a longer view shows the banker how the property performs, what the expenses are likely to be, and gives him a good picture of the properties I choose.  It isn't my firm, but a mortgage broker I am doing business with as I look to buy more rental properties.  Search this site for the terms "house hacking," as there have been a number of articles written on that topic and it comes up in forum posts, and in the podcasts.  You do listen to the podcasts, right? :D

Originally posted by @Duriel Taylor :

@Jeff Arndt  

Thank you for your prompt feedback. The investment I purchase has no equity nor do I own it out right. I financed it for $153k and my monthly mortgage is $1,100; the tenants pay me $900 each so my profit is $600 per month which include the water bill as well. I will look for the  J. Scotts book on flipping houses book you mentioned via Amazon. Furthermore if you can refer any and all private investors I would greatly appreciate it. I do not mind paying a high interest rate as long I am making a profit, even if its a few dollars I do not mind, I can pay that lender(s) and or private investor(s) off. I thank you so much for your feedback again. Take care and enjoy your day.

Regards,

 Dorrell,

A word of caution:  to me, your numbers do not look like the property is generating $600 per month in profit!  I'm assuming your $1100 mortgage includes taxes and insurance, but there are many other expenses you need to take into account (vacancy, turnover cost, repairs/maintenance, replacement of capital items such as roof, HVAC, appliances, etc, property management.  Based on conventional wisdom and rules of thumb (search: "50% rule" here on BP), I'd be surprised if you had any REAL cashflow at all.  Now, there may be other reasons that make this property worth owning but I'm just cautioning against counting on the "$600/mo profit" when planning on acquiring the next rental property.

As far as financing the next deal, since there is no equity, your current property will only help you finance the next deal if you can show positive income from the property (and you have to show this for at least two years, normally) and add that to your other income sources.

@Andrew S.  ,

Thank you for your feedback. I understand where you are coming from I simply wanted to get my feet wet and I threw caution in the wind. But I will say I have learned so much from this property that every deal after will be a perfect fit for me and the numbers will be real estate expert approved. I encourage you to continue to share your knowledge with me in the near future. Take care.

Regards,

@Kerry Baird

Thank you again for your feedback. I have not listened to any podcasts but I will start today. I thought I knew so much about real estate but I can honestly say I learned so much from people like you in the last month that I have to now truly become a student of this industry if I want to achieve my goals. I beg of you to continue sharing the knowledge you may have and also keep me in mind of future deals you hear of and or programs your broker associate may pass your way. I look forward to hearing from you soon. Take care and enjoy your weekend.

Regards,

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