All Forum Posts by: Eric Schultz

Dimitri Wilson When buying older homes like the ones you have (built in 1927 and 1900), it is best to account for higher maintenance & capex. A home inspection report & post-inspection discussion with your inspector can help you develop a feel for the property as an out-of-state investor. Unless a full rehab was recently done on things like electrical, plumbing, HVAC and roof, it’s not unreasonable for 25 - 30% of collected rents to go towards maintenance & capex every month.

Travis Hester I would probably do a cash out refinance. Here is an example of what this could look like if you have a 760+ credit score with one of the lenders I use: 30-year fixed at 4.75% for investment property $125,000 appraisal value $87,500 loan amount (70% LTV) $2,900 closing costs, including lender fees + 3rd party services $456.44 monthly payment, principle & interest only The HELOC uses a variable rate, and that’s why they are best used for short term deals such as a flip. HELOCs work great for cash reserves on rentals as well. It would be tough to accurately project your new rental property cashflows if your down payment came from a HELOC with a variable rate. You would need to have a game plan together and some reserves on paying down the HELOC balance. Hope this helps.

Alan Miegel I would agree with your dilemma being too much equity in property. You get zero return from equity in a property. That is why I’m always confused by other investors that are rushing to pay off a mortgage, especially when the debt payment is outsourced to the tenants and the property has positive cashflow. Find “your” arbitrage. Cap Rate - Interest Rate = Arbitrage Many great ways to achieve this simple concept have already been shared.

Derek Robinson Make a transition over to “being the bank” and go the private lender route. Another option is to look into AHP Servicing. They are offering a 10% preferred return in the current notes fund.

Ashley Rummage Unless you have some experience using creative financing on real estate deals, I would only use a HELOC for a short term deal such as a flip. The variable rate on a HELOC is directly tied to the prime rate, which is on the uptick. Also, HELOCs are great for use as cash reserves, allowing you to put your actual cash savings in play with investments.

Mahmoud Y. Elhalawany We keep one bank account per rental property and have a HELOC to back up the cash reserves in each account.

Molly Plude Take the 30-year fixed. It allows for more options: 1.) how quickly or slowly you pay off the loan 2.) higher interest in the initial years for greater tax deduction 3.) higher cashflow for the first 15 years; dollars are worth less “tomorrow” so collect more of them “today” to reinvest sooner 4.) during times of turnover & vacancy you have a lower debt payment to make while rental income is paused Maintaining lower equity in a property, such as 75% - 80% LTV for a longer period of time is actually an asset protection strategy. Why be in a hurry to pay it off, especially when you have outsourced your debt payment to the tenant?

Christian Gehman Take the 401k match and diversify in index fund options with low turnover and expense ratios, if offered. You would have to be a fairly experienced ‘active’ real estate investor to achieve a 100% return on your invested capital in a 12-month time period, which is what your employer 401k match is offering. The big difference is that contributing for the 401k employer match is completely passive in regards to your time, while being an active investor is not. Yes, the tax benefits are much different between the two investments, but there are too many variables to quantify for a one-size-fits-all comparison. You can definitely do better investing in real estate either actively or passively versus investing the difference of the employer match and the 2019 max allowable 401k contribution of $19k.

Lee Perry What year will the 10-year loan adjust? As Ericka Grant said, that’s a really good rate. Inflation is basically creating a net neutral situation for you. Every dollar in interest that you pay the lender as the years go by is worth less, and hopefully you are experiencing a little bump each year on property appreciation to hedge inflation on the other end. If you move, would you be remodeling to sell at a higher price to retail buyer or holding this property as a rental?

Ericka Grant The return from equity in a property is zero. Allowing the bank to have more equity in a property that you 100% control is better than the other way around. Having 70% - 80% LTV is actually an asset protection strategy. You might look at this combo of options: 1.) refinance into a 30-year fixed to reduce the monthly payment and allow for even more monthly cashflow to invest. 2.) invest the $112k you would have used to pay off the loan into AHP Servicing. AHP provides a 10% preferred annualized return and you can access your initial capital back in 30 - 60 days if needed. They offer monthly distributions or auto reinvestment. It’s a social investment that helps families stay in their homes instead of being foreclosed on by banks. 3.) take a HELOC out on the property to access the remaining equity that is getting you zero return. There are many lenders that pay the closing costs, so it’s only the time gathering and completing the paperwork for you. HELOCs are great for short-term deals and cash reserves on rentals or general emergency fund. Keep in mind the variable rate though.