What to do w/ a $175k HELOC - Starting Out

15 Replies

Hi all,

I'm in the SF Bay Area and looking to do some investments possibly out of state with a turnkey company. I have no cash readily available; however, I have a $175k HELOC available to me from the equity form my primary residence. I don't anticipate having any problems securing a conventional loan. So my question to the BP community is:

What would YOU do with that HELOC if you're just starting out?

Some tid-bits:

  • I am a buy-and-hold guy
  • Looking for cash-flow to eventually replace my "work" income (10-15 year timeline)
  • As I said, targeting out-of-state investments, so I'll be securing a reputable team to help manage the properties (thus possibly going turnkey)

I realize that I might get 50 completely different responses, but I don't mind thinking of things I never would have considered being a newbie.

Thanks for your time and input!

What is your credit like?  Michigan is a great buy/hold.  My suggestion would be to buy 3 properties in Michigan with cash, then refi them to get your money back out, then reinvest them again, then refi those three out, and refi that last three again.  You would end up getting 9 deals in a relatively short period of time this way.  All very good cash flow deals...and if you didn't notice, you never spent your money, so you can then become a cash partner where you put the cash in, ad somebody else refis the dash back out.

This works fantastic in Michigan, since we have many low cost, low tax, high rent markets. We do this all the time. It's our standard M.O., and very popular with out of state investors...particularly wets cost REI's.

Joe Villeneuve
REcapSystem
A2REIC

@Neil Anthony  

Research.

Check out the the Podcast, #63, #73, & #85 all have to do with long distance investing in some way or another.

The Forums here are BP are great as well, I just find it easier to listen to the podcast as I'm running around town.

Cheers.

How what is the reason for paying cash and then refinancing money out versus just getting the 20% conventional to start? 

There is a 650 unit apartment complex in Newport News going up for auction tomorrow with a starting bid of 100k

This could be a money maker with the right team in place

@David Roberts  

1 - Not all properties are financeable at the start for what you need.

2 - REFI allows for cash out in certain properties

3 - REFI's are generally easier to get than initial financing for Hold properties...and with better terms. I can get 75-80% LTV on a refi, and 70% on a new loan for a rental. 75% on a buy/rehab, but that's on cost. The refi would recover all the cost...and then some, so I would have no cash left in the deal.

Joe Villeneuve
REcapSystem
A2REIC

4.  True cash offers can result in a meaningful discount.  Especially this time of year.

Originally posted by @Richard C. :

4.  True cash offers can result in a meaningful discount.  Especially this time of year.

 That too.

Joe Villeneuve
REcapSystem
A2REIC

@Neil Anthony  

Great question! With 175k and starting out I would invest in SFHs in the Metro Detroit suburbs.

Stable area, low acquisition cost, and break even points around 5 years depending on the neighborhood.

3 bedroom 1 bathroom, 1000 sq ft homes, in the Suburbs you can get around 40k with 800-900 rent range, netting around 450-500 per property after taxes/insurance.

Best of luck!

Originally posted by @Dan Gheesling :

@Neil Anthony  

Great question! With 175k and starting out I would invest in SFHs in the Metro Detroit suburbs.

Stable area, low acquisition cost, and break even points around 5 years depending on the neighborhood.

3 bedroom 1 bathroom, 1000 sq ft homes, in the Suburbs you can get around 40k with 800-900 rent range, netting around 450-500 per property after taxes/insurance.

Best of luck!

 All day, every day.

Joe Villeneuve
REcapSystem
A2REIC

I read a few years ago about the Detroit area being a good buy at very low prices after all the big 3 problems in the auto industry.  My first thought was if the jobs were low then the rent would have to go down also.  I guess if you are able to buy a house for $40K and rent for $900 the rent was not effected.  

If you are new to real estate investing AND you don't have cash...proceed very cautiously with doing anything grand out of state.  Maybe do ONE.  Run your numbers and be absolutely certain that you can make the payments comfortably IF the your out of state adventure turns out to be a disaster.  Most here will not share with you all of the nightmares.

For the newbie...or anyone actually...I would suggest a completely passive investment with a crowdfunder like groundfloor.us where you can earn 8% to 12% totally secured on minimal investments of $100 bucks to whatever you want.  When the average investor out here is lucky to be return 3 or 4% and that's about the national average...a crowdfunder could be the right order for someone like yourself getting started.  You can get a taste for a contracting team/turnkey guys through the program and then decide to invest more if you like the experience.  

Replacing income totally is very possible but no so easy to do if you aren't boots on the ground in your investing market.  Happy Investing!

Originally posted by @Brian Johnson :

I read a few years ago about the Detroit area being a good buy at very low prices after all the big 3 problems in the auto industry.  My first thought was if the jobs were low then the rent would have to go down also.  I guess if you are able to buy a house for $40K and rent for $900 the rent was not effected.  

 950   Rent
250   T/I
 95  PM
 50  CR

650   Typ Cash Flow before financing

If you buy in cash and refi (after usually 2 months seasoning) you can get your 45k back out since the comps in the area are usually around 60k +, and I can get 75% LTV. Monthly payment around 240/month.

400 +/month CF with PM/CR/PITI

Pretty typical

Joe Villeneuve
REcapSystem
A2REIC

I'm sorry, what is CR?  Based on your numbers I can see it being easy paying cash for the property.  Are these properties that you buy for $45,000, are they turn key properties and are they in low income?  

My wife and I are making a trip down to Tampa Fl to look at some properties in that price range but I have a feeling that they are going to be in rough areas.

@Brian Johnson  CR is a Cash Reserve for the inevitable "ooops" that will happen (roof leaks, vacancy, et...)

These are not low income properties, and they are turn key.  These deals can go as high as 50k, but there are many as low as 45k...enough to use that as an example price.

Joe Villeneuve
REcapSystem
A2REIC

To start make sure you can easily make your heloc payments w/o additional income from the rentals. 

This is your home so don't treat this as easy money because it is no different then using your own cash. You are just making your equity liquid and it all spends the same. The difference is the bank has strings attached to these helocs and can reduce the credit line and increase the rates.

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