All Forum Posts by: Eric Schultz

@Kelly McJunkin

Here’s another route if not now, for the future...

If you are not familiar with the term accredited investor, look up the SEC definition and see if you meet the requirements.

If you do meet the requirements, more doors in real estate investing will be open to you, especially on the more passive investing options.

The caveat to investing in syndications is that getting involved should be an active endeavor upfront. It comes down to investing with those syndicators / operators that you know, like and trust. To develop these aspects of the relationship, I recommend phone calls / virtual meetings, monitor their deal flow, review their track records, attend their webinars, etc. Get knowledgeable on the markets and underwriting of the deals. Then jump in for the passive investing.

@Derek Meyer

Play some defense by optimizing your expenses.

1.) Re-negotiate with your providers on cell phones, cable/internet, insurances, etc.

2.) For the short term (as I don’t promote scarcity mindset), adjust some spending on travel, entertainment, dining out, gifting, etc.

3.) How can you pay less in taxes (legally)?

Next, play more offense by increasing your income.

1.) Find complimentary income streams to what you are already doing, whether it be a hobby, W2 job skills, etc.

2.) If you are an entrepreneur, provide more value so you can raise your prices.

3.) If you are a W2 employee, start building your case to ask your boss for a raise in the next 6 months. But, be prepared to back it up with results.

Playing stronger defense and more offense at the same time will accelerate your savings rate.

If that all seems too daunting then you can always study B. Turner’s Low & No Money Down book.

There are several ways to go about this, but you need to find what path motivates you the most. Then game on!

@Neil Narayan

If all quoted capital projects are private sector, it may have more meaning and benefit to residential real estate investors looking to be in a steadily growing market, but if there is a large portion of public works projects in this mix it could simply mean that’s where your high property and sales tax dollars are going towards. Either way these projects, whether private or public, do promote job creation and job growth.

@Jonathan Girard

Since you do not have a track record yet, be prepared to give more to your investors or lenders on the initial deals.

For example, I’m getting 10.5% and 12% on some private lending currently and that’s with people I know, like and trust.

@Ben Waslaski

Sounds like this may be an older property on the east coast.

It is probably the right thing to do to upgrade the electrical, but it also depends on your length of hold period and goals with this property.

@Seth Eues

Here you go:

HUD 4000.1, page 135, provides the standard for owner occupancy:

“At least one Borrower must occupy the Property within 60 Days of signing the security instrument and intend to continue occupancy for at least one year.”

Assuming you do not already have an FHA mortgage on your first property, you can probably make this work. You will need to make sure your mailing address is updated to this second property as simple proof.

Technically you are spending more than half your week at the new second property, so it seems legit. It is similar to living somewhere 6 months and 1 day to claim residency (for lower or no state income taxes) in that location while you split time living elsewhere.

@Samantha Prince

First off, the 3 year vesting schedule and 8% match are definitely on the higher end for a 401K benefit. There are many 401k’s out there with 3% or 4% matches and 5-6 year vesting schedules. So, as a simple comparison of 401K’s, you have a pretty good deal.

The next consideration would be the selection of bond funds, mutual funds, index funds, etc. that your 401k plan offers. Optimize that based on expense ratios and your risk tolerance.

I’d say just stick with it for the 3 years if you can brave the W2 job for that long. You are likely making pre-tax contributions (some employers do offer Roth 401k options too), so this is lowering your taxable income each year as long as you are contributing. It’s not what you make but what you keep.

Continue to build up your ammo of cash savings along the side for getting into your next real estate deal. Remember to maintain some cash reserves for each investment property.

In three years from now, you may find yourself with at least a couple options in which to fund your next real estate deal:

1.) you may have built some equity up in your first and second house hacks, in which you can now either cash out refi some funds or take out a HELOC on one or both of those properties.

2.) you will have a fully vested 401k account, in which if you leave your employer at that time, you can roll over the 401k into a rollover IRA. Then you can convert the pre-tax rollover IRA into your Roth IRA in that same year or a future year where you may temporarily have lower income. This will lower your tax burden on the converted IRA funds. Once those funds land in your Roth IRA, you can withdraw those "contribution" funds shortly there after penalty free with no further taxes to pay.

If you really want to accelerate that 10-year plan to FI, you may need to play more offense and generate higher levels of income preferably through multiple complimentary income streams.

@James Leigh

Yes, I think you were informed correctly by the credit union.

This is a good point. The credit score impact may only be 20 or 30 points for having a high HELOC balance (say greater than 40% credit utilization). If you are hovering around 760 credit score and then drop to a 730, you may be bumped into the next tier of interest rates (not as favorable). If you have an 810 credit score and drop to a 780, you are still in the top tier for obtaining the best interest rate on the Refi loan.

Another way to reduce this credit score impact is to utilize velocity banking method. You can make lump sum payments (greater than the monthly interest due) against the HELOC each month with your net positive cashflows from W2 income, business income, real estate or other investment income. The lump sum payments will reflect positively on your credit report after 2 or 3 months to start bringing your credit score back up.

You can always discuss this scenario with the lenders and see what your Refi rate may change to depending on X credit score.

@Brandon Shaffer

A HELOC is a great way to cost effectively finance a BRRRR deal, assuming you have solid underwriting on that deals rehab costs and ARV.

Not sure if you looked into how much you can get on a HELOC yet, but the formula is typically: (appraised value estimate x 80%) - mortgage balance = HELOC amount.

Some lenders may use 75% in that calculation, which could be influenced by your credit score, local market, etc.

I've been able to do desk appraisals on my HELOCs so far, which the bank would pay the appraisal fee either way. Some times a HELOC can have $200 - $300 closing costs, but several are offered with no closing costs.

On one HELOC I recently locked in a 1.70% 1-year fixed rate option on a promo, which would be great for a BRRRR deal. The rate turns variable after the 12-month period. On another HELOC I recently did a 2.74% 3-year fixed rate option. There is typically a minimum withdrawal amount in order to get these fixed rate options. The FRO's are great as they protect your downside for the stated time period, allowing for the close, rehab and refi to take place all while making low monthly interest only payments.

If you have the equity built up, the HELOC can be a much better option that hard money lending or private lending.

@Brandon Baker

Mandatory renter’s insurance is a must in the lease agreement!

For example, an innocent 3 yo flushed baby wipes down the toilet at one of my properties sometime prior to the family leaving for the weekend. His parent’s renter’s insurance covered the $22K in flood damage repairs. My property insurance remained untouched.

Not necessarily a lease inclusion but...

Having a personal / business umbrella policy is always a good idea as a landlord. I also have copies of my property managers’ insurance policies as well.

Insurance can plug those responsibility gaps not spelled out in the lease.