All Forum Posts by: Aaron S.

Thanks, 

@Brian G.

To answer your question, I'm definitely not an experience REI, however, I've been doing my homework, reading, taking classes, and I have a couple friends who run large MF syndicates ( hundreds of millions of dollars in assets), so I am getting good advice and mentorship. That said, this would be my first MF deal. The issue / question I have with your suggestion of buying multiples in that on a 1031, I can only identify 3 properties (or the 200% rule), but in my market (Denver metro), unless I am doing fix and flips, I'm not going to get multiple safe investments that I know I'll close on, for that money.

That said, I'm not going to go into any experimental areas. In fact, I'll probably under leverage and take a lower cap rate (5-6%)  just to give me some buffer and safety for my first deal. Even then, cash flow is way better than my current 800K in equity is getting me. 

But again, that's where I hesitate...the San Francisco rental has had crazy appreciation. Part of me wants to keep it, leverage some of that equity and then maybe do an exchange on it down the road. At this point the San Francisco property is an appreciation hold (already more than doubled), not a cash flow property. 

Let me know if that changes anything for you:) 

Thanks, 

Aaron

Thanks @Brian

@Brian G., 

So assuming all that is true...that I can cash out 300K, keep the same cash flow, and then buy another investment that also cash flows....at what point do I know if it's better to do that vs. sell current property and put in in something bigger (6-10 units, etc). 

Is it generally considered better to consolidate vs build a portfolio? I realize the most obvious answer is 'depends on the deal', but I'm asking more from a theoretical perspective. I'm guessing if I can use 300K to buy a $900K-1MM 4 or 5 door building at 6% CAP, I could probably cash flow pretty nicely and have a couple properties under my belt.

I've posted my situation in another post, but I'm looking for more of a theoretical / applied answer to this question: 

Why / When does it make sense to do a cash out refi to buy another investment property? I don't fully understand how the power of that leverage (borrowing money to borrow more money) makes financial sense. 

In my situation, I can take $300K of equity out of a rental and still cash flow each month with a little buffer. But if I'm paying say, 5% for that 300K, and then use it to borrow, say another 600K for a multi family at 5% what do I need to make on my new investment to make it worth it? 

I've read posts where people say "that's the power of leverage" but to me it seems risky, adding debt to debt. 

I'd love an explanation as to why this strategy makes sense, or doesn't. 

Thanks in advance. 

Thanks @Amit M., 

I've always assumed my HELOC limit would be lower than a cash out refi. Also, I believe it's harder to get a HELOC on a rental property, but I could be wrong. I hear you though, I'm torn. My guess is as good as anyone's what the market will do. I bought in 2003 for 560K, it went up to about 800 in 2006, then back down to about purchase price for a few years, then a straight shot up to where it is now. It just makes me nervous to have all that equity exposed to price fluctuations right now.

I agree, I'll always be able to rent it out. But as I mentioned earlier, needing to make a 4.75-5% interest rate on 300K pay off in another investment –– while not too ambitious–– is still a factor. This is vs. putting the equity in to a 15 or so unit bldg even at a lower cap is still cash flowing way more. 

Am I being shortsighted? 

Thanks @Dave Foster, that's helpful. Yes, I'm definitely considering doing the cash out refi. My issue with that is two fold. One, it's a pain for me to rent it and manage it remotely. I had one tenant for 11 years, who was a dream. Then one tenant for one year who was calling me every couple weeks. Since I live out of state and don't have management, it's definitely a little more challenging. And as I charge more in rent (currently $4800/month!) I feel I need to respond quickly to any problems. 

My other issue is the pressure to make more in the investment of the cash out money than the interest I'm paying. Let's say I get 4.75%, I need to find something that is going to at least make it worth it. Then I have a 600K loan on my rental to get 300K in cash...I don't know. If you look at economies of scale, putting 800K down on a 2 MM property will still cashflow way better than my SFR plus the 300K invested, I'd think.

@Matt M., I work in advertising / marketing, mostly from home. So while this isn't going to be my day job, I've been interested in getting my feet wet in MF for a while. That said, maybe I'm underestimating how much time I'm going to need to put into it. My hope Is that I can still make a deal work financially with management. As I said, even at say a solid 5% cap rate, I'm still making a lot more in cash flow that I am currently on my SFR. Yes, my CoC return won't be as high since I'll probably have more equity than necessary, but for my first deal I don't mind the cushion.

Any of your thoughts are always helpful. Thanks again! 

Hi all, I'm looking for some different perspectives on what I 'should' do in my situation, which is as follows: 

I own a SFR in San Francisco. Valued at about 1.2MM, with 300K left on the mortgage. Right now, I only make about $900/MO cash flow (not including repairs, which are minimal. But still not included in that number.) It's a terrible cap rate / cash on cash return, but a good problem to have.

My tenant is moving out next month, and I feel like it's time to get out and 1031 it into something bigger and in my own market (I don't live in SF anymore...Denver now.) 

After educating myself the past couple years, and talking to friends in real estate, here are the options I'm considering. 

1) Keep the condo, do a cash out refi. I can get about $300K out of it and still cash flow about 1K a month with the refi (not including maintenance.) So I'd have a 600K loan and still be at 50% equity.) So I could take that 300K and invest in other properties, the stock market, a ski house rental, etc.) 

2) 1031 into a smaller multi family for equal price as my sale (say, 1.1MM after commissions and closing). In that instance, I'd have 800K into a 1.1MM 4 plex, let's say. Then do a cash out refi on that building, to invest in other things as noted above. 

3) Use my equity to lever up to something bigger, say a 10 - 15 unit building. Understanding the loans are different and will need management, etc. In this case, I'm hopefully cash flowing much more than my 1K a month on my condo in SF. Even at a 5% cap on, say a 2.5 MM building, that's 125,000/year NOI.

4) Do a cash out refi on my current property, take out 300K (as noted in #1), and then do an exchange in a year or so. In this case I can get some money out now, then still do an exchange into a 1.2MM property with 50% equity (give or take). 

Actually, there is a 5th option, which is to do a TIC into a friend's large multi-family business as a passive investor. I realize there are rules around this re: a 1031 but I understand it can be done if done right.

Good problems to have, but is one of these options clearly better than another?  

@Dave Foster you've had great insights on my questions in the past. Would love your thoughts here a well. 

Thanks everyone in advance! 

I'm about to start looking for a property to do a 1031e into a larger multi-family. What's the thinking around working with one broker vs multiple brokers as a buyer? I've heard it's limiting to sign an exclusivity agreement with one broker. But I've also heard that if you are working with more than one broker, it can end up hurting you because brokers don't want to share the commission and so won't take your offer to the seller as a 'serious' offer. It seems like I should have as many people hustling for the deal as possible. Would love your thoughts. 

@Dave Foster, Circling back from a discussion a few months ago re: changing the name on a potential 1031: 

Another option is for me to change my current residential SFR from my name into a revocable trust my wife and I have for our kids. Then, do the exchange into the same revocable trust. By doing that, am I a) protecting myself to a greater degree from any potential legal action b) benefiting from a tax perspective, or c) benefiting in any way...i.e. would doing that affect anything for better or worse?

Thanks in advance! 

Aaron

Hi @Matt M. no, I’m not sure I’m familiar with those. I can do some research and see what I can find out. Thanks. 

Thanks @Dave Foster. That's really helpful. Appreciate your time and insight.