All Forum Posts by: Ben D.

James - Regarding the question about your long term strategy; your approach is similar to my own except that I am not a proponent of carrying so many mortgages. Leverage is great when asset prices are going up but as we learned (forcefully!) in 2008, that isn’t always the case. But more to my point, if you are like me and have a full time job you know that you have a limited amount of spare time to deal with all that comes with landlording.

Consider a simple illustration:

Option 1: Use leverage and multiple mortgages to acquire five properties that net you $100 per month each in positive cash flow.

Option 2: Use much less or no leverage to acquire a single property that nets you $500 per month in positive cash flow.

Option 1 entails five mortgage payments to make each month along with five sets of the other associated costs with owning real estate (property taxes, insurance, maintenance,vacancies). It will involve managing five different tenants; people who will call you on the weekend or late at night to tell you that their kitchen disposal isn’t working or that their toilet is clogged; and five possible excuses for why rent is late this month, etc. Option 2 involves only one tenant to manage, one set of expenses, and little or no mortgage. Both options offer you the same $500 per month cash flow but in my opinion and experience, Option 2 offers you a better quality of life. Yes, there are downsides to the Option 2 approach. Some examples: one vacancy and you lose that entire $500 per month in cash flow (as opposed to just losing $100 per month with Option 1) ; when real estate values start to rise again your net worth will increase 5X faster under option 1; and probably the biggest downside, Option 2 is a slower and financially more difficult approach.

Just my two cents on this. The points I make are probably less relevant to full-time real estate investors who have more time to devote to property/tenant management. And it’s obviously not relevant at all to the house flippers.

This will be an unpopular response but I say put as much down as possible and pay it off as fast as you can. From a practical standpoint, it's all about cash flow. Peace of mind comes easily as those mortgages go away.

I think fixing it would basically just mean removing it, which would require permission from the neighboring house. It's probably a 10 X 10 piece of roofing that covers a storage shed that is between the two properties. My initial thought was to budget having it removed but I plan on keeping it as a long term rental and I wonder if I should even worry about it. I just wonder if I'm going to get any grief from the neighboring house once I take ownership. I almost just knocked on their door and asked them about it today. I will definitely have a survey done if I move forward. This appears to be a great deal for me other than this one questionable item.

Well this is a weird one. I'm considering making an offer on a property next week that has one odd, questionable feature. It is a single family residence but apparently the previous owners were pretty tight with the next door neighbors as they have a roof/overhang that literally connects the two houses.

Has anyone ever seen anything like this before? (I haven't.) Thoughts on any legal problems that that could cause? It's kind of hard to describe but a section of roof is literally connected to both properties.

Wow...these are some great responses. Thank you everyone for all of the informative feedback. I think I'm going to stick with post 1980 properties. There are plenty of them out there and why add any additional headaches unnecessarily.

Hello!

As a result of a previous post where I asked about a HELOC against a rental property (thanks again!), I am now in the market to acquire my next investment property. We've been looking for about a week now and have found a number of good prospects. However, a fair amount of these houses are older (pre 1978 construction) and therefore have the potential for lead paint issues. From what I can tell, anytime a landlord rents out a house built pre 1978, an EPA lead disclosure form is required. In addition to the disclosure, there could be actual lead paint which could indeed be dangerous if there is remodeling going on and paint dust is in the air.

If I rule out pre-1978 properties I lose a huge pool of potentials. Not to mention that alot of older houses like that have considerble charm and character.

I'd love to get some opinions and insight from other investors on the subject of lead paint. Have you rented out older properties? Was the disclosure an obstacle with potential tenants? Any serious safety concerns?

(I'm in Texas BTW, but I think the lead paint laws are basically nationwide.)

Thanks again for any input.

Thanks to everyone for the replies. I did some leg (phone) work last week and found a lender that will do a HELOC on an investement property: Wells Fargo.

This was great news to me as it will save me $3K+ in closing costs and allow me to acquire my next property more seamlessly.

Hi Robert - I'm going to sound like a real greenhorn asking this...but what is an occ?

Brian - Thanks, I've had a couple of people tell me that and I will put it to the test this week. I hope you guys are right.

Greg "B." - Try to think of me as Ben "D." If that doesn't help, just know that "Ben There" was the runner up to my first choice of "Chester Copperpot". (And thank you for the welcome!)

Hello,

This is my first post here and I would like to say thanks in advance for any insight and advice.

Here's my situation:

I have two rental properties that I own free and clear. I've been building up some cash to put down on a third property and my plan has always been to borrow against one of the other properties to get that next property. I only need to borrow $35K but I've shopped around and unfortunately the closing costs on a cash out refi are very high when taken as a percentage of that $35K. Even though interest rates are great, I'd be paying over 8% for financing when closing costs are factored in. That obviously makes this plan much less attractive. The ideal option would be a HELOC (no closing costs) but it seems like banks quit doing HELOCS against investment properties after the financial crisis of 2008. I do have equity in my primary residence but not enough to get $35K.

The way I see it I have four options:

1.) Suck it up and do the cash out refi, and be out the $3K+ in closing costs.
2.) Lie and claim that the rental property is my primary residence.
3.) Wait until I have enough cash to have to borrow for this next property. (That would take me about 9 more months.)
4.) Look harder for a bank or lender who will do a HELOC on an investment property. I haven't tried any small local banks or credit unions, or any large online lenders like Lending Tree, etc. I have great credit, cash in the bank, a healthy income, and two properties free and clear...surely some bank would see that this is a no-lose deal for them.

So what do you guys think? Has anyone had any luck doing a HELOC against a rental property? Any suggestions? Any worthwhile options I'm overlooking? I don't really want to wait the 9 months because I know I can get significant positive cash flow right now, and don't want to miss 9 months of that.

Thanks again for any input.