All Forum Posts by: Amy Zemser

Hi BP friends, 

I need some advice about a house going to auction in my neighborhood. I am a landlord for 2 properties and am looking for another, although for my next one I will have to use cash (HELOC) in my residence to buy a rental. So I have to be very careful and sure of a return so I can cash out/refi to put HELOC money back.

Again, I want to be VERY conservative in my first HELOC deal.

The house is a 4 BR 1.5 Bth. I live in a mixed income city, but this street is mostly working professionals, and the house comps out at around 170-190k. The house is going up for auction next week starting at 60k.  I took a walk over there to take a closer look. 

As it happened, the guy renting the place came outside. He wasn't terribly friendly and he had a lot of tattoos and no teeth.  He did say that the owner was a bum and that the interior needed "a lot of work" including a new boiler.  He said he was renting for $1200 and that the landlord had reduced his rent from $1400.  He told me there was hardwood on the floors and he really didn't want to talk much further.  

I was surprised to see this type of renter in the house given that the street is very nice and I know a lot of people who live on it. Then again, this is a mixed city and you get all types. 

I tell you, I was tempted to offer him fifty bucks to let me inside and am still considering this. What do you BP folks think of that?! Will I be writing my next BP post from behind the bars of our county jail? 

This house appeals to me because I know the neighborhood and the house looks decent on the outside. I guess it's silly of me to think of doing my first investment property from auction, but I can't help but feel fascinated by this house.  If I could be 100k all in and refi at 200k, wouldn't I then clear 100 in profit, give or take? Obviously these are the roughest of numbers.  And of course this assumes I can get the house for 60k and that it only needs 40k in work.  

Just wondering what you guys thought.  Here's a link to the house in question.  And I thank you all in advance for reading.  Best, Amy

https://www.auction.com/new-york/residential-aucti...

Thank you, Josh Mitchell.  

Hi Ed, 

For my last one I agreed to 5.75% vice the high threes so that I could get 90% LTV vice 80%. That equated to another ~$30k in capital. As long as you use the money intelligently for investments vice vacations or a new car it should pay off.

I'm not sure what you mean here by vice.  Can you unpack this a little more so that I can understand?  Just explain it to me as if I were a three-year-old.  

Thanks so much, 

Amy

Thanks, Ryan.  

I check the public auction records every day in my area, and today is a good example of something interesting showing up.  

I live in one of the nicest neighborhoods in a mid-size city in upstate New York. The city has every class of neighborhood, from slummy areas to tree-lined streets where professionals live, like us. The person who sold us our house bought it before the crash at 460k, and we bought it in 2011 for $300k, a five bedroom huge Queen Ann Victorian with a legal rental on the back.  I'm obsessed with finding a deal in my neighborhood because I figure it's best to start in an area I know well and am comfortable with.  

So today I noticed that a foreclosure two blocks away will be starting at auction at 60k. It's in my neighborhood -- a 4 bedroom 1.5 bath. Would probably rent for around $1800/mo at $190 ARV. I haven't checked closely, I'm just ballparking based on what I know about the area.

I can't move on this because according to what I've learned I must first try and qualify for a loan so that I can refinance down the road (right?) and of course I also have to figure out where I can get a good line of credit on the house we live in. Plus, there's no way for me to know what the inside of the house is like, right? Since it's a foreclosure. Sure looks nice on the outside, though. With a HELOC we could potentially rent out our own home, use the money on the rental to pay back the HELOC and move my family into the foreclosure house while we work on it. Then do the cash/refi, move back home, pay back the HELOC and ideally have some cash to start all over again.

Only one problem, aside from the fact that I haven't lined up my loans.  Well, two problems.  Again, I have no idea how much damage is on the inside of the house, and secondly...

I'm too scared.  My real estate agent says that foreclosures are a big pain in the *** and he doesn't want me to do them.  

Again, thanks in advance to all commenters.  

Best, 

Amy

Thank you, Edward B. Your explanation was beautifully explained and I'm grateful for it. I'm always looking at the MLS for deals and the foreclosure auctions and houses coming up on tax liens. I'm not ready to move yet because I don't feel confident about all the moving parts but I finally understand the process. I think what we are going to do for now is see about how much we can qualify for, so we can know what type of priced house we can afford to finance after repair. Do you think this makes sense? I also need to shop HELOCS around too, since the one bank I called said that on 100k they charge for principal and interest monthly, some $700. That's a lot to bankroll while trying to fix up a house. The whole thing gives me an aneurysm.

Again, thank you for writing. I welcome your opinion. I'm still reading and struggling and imagining different scenarios. I think for our first house I'd like to play it as safe as possible with neighborhood and repairs etc. whereas down the road my spouse and I are interested in developing a portfolio that will help revitalize neighborhoods. 

Keep writing! 

Thanks again, 

Amy

Yes, I've read this post many times already.  Thank you! 

Hi Corby, 

You have a fabulous name, by the way.  You sound like a character in a book (I'm a writer, so I look out for these things).  

What strategy are you referring to being a game changer? The BRRR et al strategy? Why did you use the HELOC vs regular mortgage on your home to buy properties and how did you find your deals?

Gratefully, 

Amy

Hi Byron -- 

I do need to get the low money down book that Brandon's been promoting here.  But still need to finish reading a few others on my list...

Thanks! 

Amy

Thank you again.  

My cousin in Boston, a real estate agent and investor, is wondering why I wouldn't just take out a mortgage on our house (30 yr) for the cash rather than the line of equity.  Can anyone speak to the difference or does it just depend on the structure of the financing?  

Best, 

Amy

The most simplistic strategy would be to have the original HELOC get you property #1 which is refinanced to get property #2, which is refinanced to get property #3, etc. The monthly payments on the HELOC would be your cost for maintaining access to the bankroll of funds.

Thanks for this response. I just want to make sure I understand you. The HELOC, then, never actually gets paid back fully? You're always just feeding it monthly with whatever you get in rental income assuming you are cash flow positive on the properties and paying in full to HELOC each month? I get confused about paying back the HELOC vs using refinancing/cash out to acquire the next house. I'm new, scared, and risk-averse, so the idea of the HELOC gives me an ulcer.

Also -- which strategy is better -- 4 houses or a 4plex?  Or does it completely depend on the particularity of each deal? My neighbor says I'll never get anywhere buying SFHs as investments.  He says the smallest I should get is a 4 unit.  

Lastly, if your only access to cash was what was directly in your own home -- is this what you would do? What is the risk involved in using the HELOC on the home you live in? I've been told not to do it by some investors. Why?

Again, I'm so grateful for the advice of others.  I can't thank you enough for taking the time to respond to this thread.  

Best, 

Amy