All Forum Posts by: Douglas Pollock

@Michinori Kaneko The takes me to my BP profile.

@Michinori Kaneko. Thank you for the reply and the link! What you are saying makes sense now. I often hear that PM is 10%, but Brandon Turner has used 12% during BP podcasts. That must be 10% for the PM plus 2% for maintenance. And yes, I did not know Cap/ex was the correct term for the major fixes. Thank you. I have heard of people using a HELOC for CAPEX. I think I need to start a thread, or find one, on reserves. I view equity as a reserve, albeit not as liquid as cash.

@Ben Payano I‘m new at calculating cashflow. Do we include the monthly increase of equity into the calculation? If the equity increase is $1,000 per month, but cash flow is negative $800, that’s a net increase of $200 per month?

What percentage should be set aside for property maintenance for single family residential. Some people are telling me 10-12% for Property Management and 10% for maintence/upgrades. I pay 10% for PM now, and don’t get calls for running toilets. However, I do get calls for major plumbing repairs, air conditioners, and hurricane damage - hence the need to factor in maintenance. At some point, the remodeled kitchen will need to be remodeled again, and the new roof will need to be replaced, and I’ll need new siding, windows, etc. I see many of the property analyzer spreadsheets only use 2% for maintenance and upgrades.... are they planning on tapping equity for the major upgrades?

@Cassidy Farnsworth I suspect it varies. Coincidentally, I’m gathering that there a lot of similarities between pursuit of education and pursuit of real estate investing. For many, it’s not necessarily a dollar barrier, but rather an emotional connection. I would argue that ”starting“ is actually that cathartic moment when you realize there’s a better path. For some, that comes whIle reading a book (Ie Rich Dad, Poor Dad). For others, It might be a discussion on a random day or through tangential pursuits at work (Real Estate agent, Property Manager, Lawyer buys a deal through work). Somewhere mixed in is a learning process about how to do it. Arguably, for many the issue isn‘t starting. Once you are enlIghtened, you have started. Finding a mechanism, strategy, tools, knowledge, skills, etc is secondary to the emotional piece. Some value the emotion of hanging onto what they have even if logically they know it’s worse. Some fear going it alone, others are in a relationship and want/need their partner’s support, some are afraid of change, and others are too comfortable with their current conditions to be motivated to change. Have you noticed the countless case studies of six-figure earners who reach FI much slower than people making half as much? I’m constantly second guessing my own pursuit: fears of failing health as I age and deal with injuries, the pressures of supporting a family of five, the nearing reality that I’ll need to change a career I’ve made progress in for over a quarter century, and even the social pressure to remain who you are. We each see ourselves in a certain light or identity. The people around us see us their own certain way. We, and others, are often reluctant to reinvent ourselves. It makes them uneasy, and it makes us uneasy too. Is it logical? No, not really. Is it reality? Yes, mostly.

@Levi Borunda Recommend comparing the HELOC to a refi. Refi will have higher fees, but if your Heloc has an adjustable rate you should run a ‘worst case’ scenario if the interest rate goes up by a few more points than you think it might.

@Taylor Colwell Run the numbers for what you are trying to do, and know where your risk/comfort level is. If you want to tap your equity, a cashout refi that stretches your loan term back to 30 years might improve your monthly cash flow and retrieve the equity. Of course, you need to consider your ability to weather the storms of life. I miss Belton. People in DC have a different culture about them. And the brisket in Belton was sooooo tasty. Don’t be a motivated buyer. If you cash out, and use it on the right property, maybe a 203b with rehab financed into the loan could be used. That’s 80K for a down payment, a rehab financed into the purchase loan, and the potential to refi that next property to again leverage equity even if you have to wait a year or two for appreciation. Disclaimer: it costs more and takes longer to fix it than you plan so leave a buffer, and appreciation is not guaranteed, and life gives you what you get.

@Jason Dillard I sat down with a lender today. I came away from the discussion thinking two tools should be leveraged to move forward. One, a HELOC on property one so I can fund rehab(s) for property 2, 3, 4, etc. After rehab I refi property 2 to cashout its equity and payoff HELOC on property 1. I would be able to tap property 1’s HELOC again for rehab of property 3, then cashout refi on 3 to pay one again. The goal would be to pull enough equity from property 2, 3, 4, ... to both payoff property 1’s Heloc and fund the down payment for subsequent investments. Also from the discussion with the lender I’m leaning toward a 15-year VA IRRL cashout refi on property 1. It adds 11 years to the mortgage, but improves cash flow while cashing out that couch potato equity.

@Jason Dillard Thank you Jason. I appreciate your wIllingness to work with a newbie. I agree, the equity looks good on paper, but it’s a couch potato when it comes to earning. Selling is an option, but since I prefer buy hold over flip, I’d like to compare selling to equity tapping. Selling does have a transactional cost, so that’s one reason I hold, and in this case the low vacancy rate. Tenants seem to stay for years at a time, the PM is doing well, and I’ve already replaced the roof as well and both HVAC so future maintenance is likely to be lower. My wife and I discussed selling to fund deals, but neither of us are ready to let number one go. What method would you use to tap the equity? I only know of three options: cashout refi, equity LOC, HELOC. I’ve never done a refi or LOC/HELOC. If I understand HELOCs, I might be able to tap into it repeatedly for successive purchases. Ie. using the proceeds of a cashout refi on the next deal to payoff the HELOC and tapping again for subsequent purchases. (Buy a pig, rehab, refi cashout, pay HELOC, tap HELOC to buy next home. Ultimately though, I want to reduce my involvement, so less doors with higher cash flows means less headaches. I’ll be a high equity investor because I want to sleep well at night.

If I’m looking to buy and hold SFR for cash flow, how do you recommend proceeding? Purchased SFR foreclosure in 2009 with $194K VA loan having 15 year fixed at 4.5 % APR. Current balance is $75K with estimated home value of $250K. We’re only 5 years away from payoff, and an $1,165 projected cash flow (not counting rent increases). Current rent is $1,800 per month, with negative $200 cash flow (if you don’t count equity as income). The thought of one property cash flowing over $1,165 is appealing, but the risk of lawsuit on a paid property makes me want to get a HELOC or refi and cash out. My credit score is usually at or near 850. Even if I don’t cash out, I’d like to buy property #2. Tapping equity in property number one would make financing number #2 a lot easier. Am I better off waiting a year and using my saved cash for a down payment, or tapping equity? After all, tapping the equity would delay the cash flow results I’m looking at seeing in 5 years. If I tap equity, what’s the best way (refi, HELOC, other) if my goal is to buy a second property?