All Forum Posts by: Jeff Roth

Hi Caitlin-

Great question. 

If you have a good interest rate on your primary FHA loan, I would use the HELOC option to get the capital you need for the STR.

Look for a HELOC lender that will allow you to fix the rate on the HELOC into a home equity loan so the rate does not keep going up on you unless you are comfortable with that and have enough cash flow from the STR to cover it.

To Your Success!

Hi Andrea-

Congratulations on your first investment property purchase.

I too have a goal of $400 positive cashflow after all expenses and property management each month.

It is possible to do this in the Midwest as I am just up the road in Ann Arbor, MI.

Now, here are my concerns:

1. The renovation costs are more than you project. Common.

2. The rent is less than you project. Common and more rental units are becoming available this year nationally in the multifamily space with new construction to compete with your rental.

3. The After Repair Value is less than you project. This is also common and in a housing market with elevated rates and buyers and sellers taking a wait and see approach I would hesitate to be so confident on that number.

Any one of the three could cause an issue.

Personally, I would not think about flipping as you will owe taxes if not done in a 1031 exchange and in addition to taxes you will have the transaction costs even if you sell the property yourself.

You can do a cash-out-refinance to get your money out tax free or get a Home Equity Line of Credit if you want to keep part of your debt with the existing fixed rate mortgage.

I guess, in short, I feel it is less risky for a new investor to rent and refinance than to flip into a shifting market. I personally to the BRRRR method as best I can as well to reduce risk and build up positive cashflow and equity over multiple properties.

To your success!

Hi Andre-

Fractional investing is where you can invest a small amount of money or a large amount passively in a real estate project or a fund of various real estate projects. It is separate from wholesaling. 

Try fundraise.com to learn more if interested.

There are various fractional investing services. Another is Here.co for fractional investing in short term rentals if you are interested in that segment.

Other use blockchain technology to fractionalize the investment.

To your success!

Hi Andre-

Congratulations in showing an interest in real estate investing and I see you are in Lansing, MI (one of my favorite places to invest).

I am right down the road in Ann Arbor.

Anyway, if you are interested in getting your feet wet in real estate investing, there are fractional real estate investing options for non-accredited investors.

I would start your search there and it would give you practice evaluating locations and different real estate opportunities.

To your success!

Hi Rami-

Congratulations on deciding to invest in real estate.

I like that you are investing near where you live. I think it is wise for most investors to at least start there if they can.

As far as mentors, I would try to find someone that knows the area you want to invest.

One suggestion is to start with property management companies in your area that are well reviewed or recommended and see if they know of any properties for sale or a Realtor that is also a real estate investor. It is good to have both of these on your team and if they are competent they will help you find deals and manage the deals successfully.

To your success!

Hi Bradley-

This is a great question!

There are duplexes in Ann Arbor but they are pricey.

A couple are on the market right now and others that could be approached to sell off market. The issue, of course, is cashflow and the amount needed to put in to the duplex to have positive cashflow especially with new construction costs and Ann Arbor non-homestead taxes unless you live in one side of the duplex.

I personally own a duplex in Waterford and use a property manager there as it is a distance from Ann Arbor where I also live.

The other area I particularly like is Lansing. Same distance from Ann Arbor as Waterford and I also use a property manager there but it is much easier to have positive cashflow in Lansing with duplexes--even using a property manager. I bought the duplex in Waterford off market very well but those deals come around less frequently.

My primary house is downtown and I have thought about turning the basement, that could have a separate entrance, into an apartment and if I ever moved it could become a duplex essentially. Just another thought. House hacking your way into duplexes. :)

Happy to help!

Hi Matt-

Great question!

In general, it is best to put down as little as possible and to use leverage.

If the property still cashflows nicely putting as little down as possible with the higher rates, I wouldn't lose sleep at night.

If it doesn't cashflow, putting more down is an option but there is an opportunity cost for that money if you could put it someplace else.

Honestly, right now, I am not sure what is a better option than real estate to put your money.

Just think about if you want to tie up more of your money if you don't have to because it may be in the property for a while.

Happy to help!

Great follow up question LaMancha!

Cost of capital is more of a concern than it has been especially for short term investments with an exit strategy in the near future.

It squeezes your cashflow and future property value if you can't offset it with a better initial purchase price or higher future rents.

Your underwriting now has to factor rates being elevated and also factoring some cushion if they go higher before you lock your rate.

Bottom line, make sure the deal cashflows strongly.

Another factor to think about is property taxes. These are going to float up as well as inflation makes properties more expensive in terms of dollars. It takes more dollars now to buy the same house a year ago because of the purchasing power of the dollar has been eroded. The property taxes went up on all my properties and you can expect that to continue while inflation is high and demand for housing strong.

All and all, compared to other assets, real estate has held up the best in the last 12 months and uses the power of inflation to your advantage because the property tends to appreciate as well as rents with inflation. In addition, if your interest rate on your long term debt is below the rate of inflation you are also ahead.

Happy to help!

Hi LaMancha-

I like your focus for the question.

1. Cashflow

2. Having a solid operator or property manager. Crucial. Maybe even more important to have in place before finding the deal.

3. Demand for housing in the area.

Thanks again. 

Happy to help!

Great post Greg.

Love the detail and data.

Personally, someone said recently "you can't eat appreciation" and I liked that a lot.

I like strong cashflow. Strong cashflow makes up for a lot of mistakes and sins in other areas of the due diligence process. :)

Someone also said recently, they would rather have 3 paid off houses rather than 10 with similar cashflow. There is a lot of wisdom in this statement.

I tend to be the fisherman that catches enough fish for the day and has time to enjoy the day than the one buying boats and hiring other fishermen(women)(people) [you get the idea :)] and have to worry about keeping enough fish coming in to pay for the boats and the people.

Catch what you need. Eat what you catch. There is more than enough for everyone regardless of your preference of strong cashflow verses strong appreciation.

Sometimes you get both.

Happy to help!