What would you do in this situation?

Question

I'm currently using the BRRRR system in the North Country. I have been refinancing the houses as soon as they are rented.

I have the ability to buy and hold some without refinancing which would give me better cash flow and the ability to pay off my other houses faster. But an investor friend told me to leverage everything and when there paid off refinance them again.  Not sure if this is a good Idea or not. I always worked on being debt free.

I am new to the rent and hold investing and would like some opinions

Thanks, Mike

Michael McConlogue · Answer

Chris I'm in Jefferson / St Lawrence County.

Brian I have been getting them done in a couple months. I have a small local bank that I have been using for 4 years. I pay everything early and show the units rented. They will lend to my LLC at 80% LTV but I usually take less. And they will only lend on properties in my area. But its working for me.

Nathan and Thomas I agree I'm all about low risk. In this venture I don't plan on taking any income (at least for several years) so I feel I can fall somewhere in the middle. I need to learn more about increasing my ROI with the tax system. I think this is what my friend was talking about. My friend is on a 2 week cruise so I cant ask him more about it right now. I've been taking 15 and 20 year mortgages. rates are 5.1 to 5.6%. not the best but my ROI  on these properties have been over 20% and cash flowing at least $200 per unit. I also do all the rehab myself. That's how I make the numbers work for me. I don't think It would work If I had to hire contractors.

Thanks for the reply's. I feel I need to learn more about the benefits to keeping the property leveraged

Thomas S. · Answer

Risk tolerance. Ultra conservative investors buy with cash and pay down mortgages earning a return on their equity equilivant to the prevailing mortgage interest rates. It is a very low return but conservative investors are not concerned with prioritising maximum returns. They are content with some return not maximum returns if there is risk involved.

Leverage investors seek to maximise income on their investments forcing their money to earn it's keep.

Nathan Gesner · Answer

I would argue that "risk tolerance" isn't much of a factor because you don't have to cash out all of the equity. You could cash out 50% and have pretty low risk.

There are a ton of benefits to keeping the property leveraged. Some of those include tax write-offs and increased return on your investment.

Brian Ellis · Answer

@Michael McConlogue im currently looking to refinance my duplex, how soon were you able to refinance? Im being told I have to wait 6 months since it is a FF conventional loan. Id like to do it as soon as its renovated/rented

Chris Szepessy · Answer

It all comes down to your risk tolerance. You can grow faster using leverage, but having free and clear properties means a lot less stress if anything were to happen..vacany, market crash, etc. Personally, I'm looking forward to my rentals being paid off. You can also have a combination of leveraged and paid off properties. If anything were to happen, the free and clear could help cover the leveraged properties.

Just out of curiosity, where abouts in the "north country" are you investing?