All Forum Posts by: Jeff Roth

Hi Landon-

Great question! You have about $280,000 in equity in your home and you want to put it to work doing a fix and flip this year and continue that model. You also asked if you should put your own house into an LLC.

Yes, I think getting a Home Equity Line of Credit is a great way to get access to that equity and only use and pay for what you need.

Putting your own house into an LLC may affect your ability to claim homestead taxes so you may not want to do that and may also affect your home insurance.

However, putting your fix and flip into an LLC can reduce your liability exposure but make sure you also have the right insurance on the property while it is being worked on. An umbrella insurance policy for you while you are actively investing wouldn't hurt either.

Look for Facebook groups that discuss wholesale deals locally to source fix and flip opportunities and get on the list for the local wholesalers near you.

To Your Success!

Great question Yesenia-

You have a house you bought well and fixed up and rented with equity. You also have strong positive cashflow every month and want to move on to the next project.

Personally, I think you are better off keeping the house and doing a cash-out refinance to get the money for the next project rather than selling the house. Look into a DSCR loan that uses the property's cashflow instead of your personal income to qualify.

This is a tax free move as you are using debt plus you still benefit from all the benefits of still owning the first house.

Your future self will thank you for stacking houses this way as your cashflow and equity will build up over time creating long-term wealth.

To Your Success!

Hi Tanner-

Great question! You are working with a new investor who has $100K to get started with real estate investing. You asked what would be the approach you recommended and where to recommend they start.

If it were an expensive area like Phoenix, I would recommend they buy a house they could live in for 2 years that would cashflow as a rental after that and move on to the next house and do the same thing. Stacking rental houses every two years using the equity built up for the next downpayment each time--ideally with duplexes.

Alternatively, they could look at a market like Lansing, MI where you can buy a duplex for around $140,000 where one side pays the expenses including the property manager and the other side is mostly profit. Buy two of those well and in a year or two get HELOCs on each and do it again.

To Your Success!

Hi Eva-

Great question! You said your were interested in investing in commercial real estate but don't know where to start.

The thing to know about commercial real estate, like residential investment real estate, is property management is where you make your money (aside from buying well). You want to add value and reduce expenses.

Also, it is wise to have a healthy liquid reserve available when buying commercial real estate.

I would call commercial real estate brokers and find one with a teacher's heart. They are out there. They can introduce you to all the local players you will need like property managers and lenders.

Over time, increase your own personal knowledge and development with books, podcasts, and conferences on the topic.

But finding a commercial real estate broker with a teacher's heart will go a long way to getting you started.

To your success!

Hi Tyler-

Great question!

You asked about a property you have listed for sale and property taxes that are coming due and the consequences of not paying them until the property sells.

Generally, the local taxing authority will impose an interest penalty on any unpaid balance after the due date with a long grace period before you would have to worry about unpaid property taxes affecting your ownership of the property or your ability to sell.

In all likelihood, the property taxes will become a part of the closing and will be deducted from your proceeds at the time of sale.

By the way, property taxes are always in first lien position ahead of any other debts like mortgages. The government makes sure it gets paid.

To Your Success!

Hi Kent-

Great Question!

You asked about the risks and benefits of using leverage in real estate investing.

The reality is leverage cannot be avoided, usually, in real estate investing.

The risks are you get over-leveraged and your don't have enough cashflow and reserves to weather a market shift, extended vacancy, or major repair.

The advantage is you increase your ROI by using other people's money and as little of your own money as possible. Better yet is to buy well so you can pull as much of your own money out as soon as possible to replenish your reserves and have dry powder to put to work for the next deal. Also, as Jason Hartman says, inflation helps you pay off fixed rate debt as you pay it back with "worth-less"dollars over time--basically benefiting from a non-inflation adjusted, original purchase price in the distant past.

To Your Success!

Hi Hadar-

Great question. 

You are asking about markets where you can Buy, Rehab, Rent out, Refinance, and Repeat (BRRRR Method) where you can buy 70% of After Repair Value and under $150,000 with good cashflow.

This is my favorite strategy as well.

There are several markets in Michigan where you can do this but the market I prefer is Lansing, MI.

It is the State capitol, there is always a lot of economic development as a result which creates jobs and demand for housing which keeps rents up and appreciation steady.

To Your Success! 

Hi Jordyn-

Great question!

You have used home equity lines of credit to purchase investment rentals and want to know the best way to pay down the HELOCs.

Between the two properties you bought, after expenses, you have $250 a month positive cashflow to use.

What I like to do is pay down some principal every month with my positive cashflow.

I use my extra active income from real estate commissions helping other investors to pay down the principal even more which just frees up that credit for me to use again.

I know I can refinance the HELOC debt before it changes to principal and interest as it is just interest only payments as yours are.

One difference is the cashflow, I have greater positive cashflow and could make the principal and interest payment in the future with the extra cashflow I already enjoy.

I always get HELOCs on my income properties as well after purchasing them to pull out as much of my downpayment as possible. Pays to have extra dry powder on the sideline and infinite returns.

To Your Success!

Hi Nicholas-

Great question!

You are a teacher from California looking to invest in states that have a high demand for section 8 housing and asked some suggestions for good states to invest.

I am a retired teacher myself and all of my tenants are section 8.

I personally love section 8 tenants and proving safe and affordable housing for them.

I am in Michigan. There are many high demand section 8 communities in Michigan because not all landlords cater to section 8 so tenants are happy and stay if you provide attractive housing for them.

To Your Success!

Quote from @Steve K.:

Quote from @Jeff Roth:

Hi Drew-

The doctors document their hours actively working on their real estate. It helps that STRs are more actively managed than LTRs to qualify for being designated a Real Estate Professional.

They do this with their individual tax professionals.

I have nothing to do with that or the cost segregation studies. I help them acquire the STRs.

 In order to qualify for real estate professional status, you need to spend more than half of your work-related hours dealing in real estate directly, or more than 750 hours during the tax year. There would be no way to do this while working a full time W2 job. A doctor’s spouse may qualify if they work a job in real estate, but very few working doctors would qualify. 

Correct. For the Real Estate Professional the doctor usually works with their spouse and some doctors have flexible work arrangements with their office or clinic or own the office or clinics and have administrative staff.