All Forum Posts by: Jody Sperling

It sounds like you have one choice: Offer more money. There's a few ways you can do that, even if you have limited cash.

1. Find a private lender or hard money lender.

2. Get a partner.

3. Save up.

Perhaps, if you feel the urge and are comfortable with higher risk, you can use the money you have now to advertise, sending yellow letters to distressed property owners in the hopes of picking up a place below market value using hard money and rehabbing it to refinance cash back out, but it's not always the best idea to start with a complex purchase with tons of moving parts before you've jumped in the game the traditional way.

Best of luck, whatever you choose to do!

There's a lot of things I can't tell you, but I read your question and it immediately struck me that I wanted to encourage you. If insurance won't cover the issue and you experience a setback, you can recover. You may lose a large sum of money because of this problem, but you aren't beaten. You aren't beaten.

The house may cost you everything you've saved and labored to build the last four years, and if you want it to, it can be a distant memory, a life lesson in a very short time.

What you are experiencing is a hardship, not a cosmic sign, not a message from God, not a judgement of karma. It's a hard hardship. I can't understand what you're feeling, not exactly, but I absolutely relate to your situation, and I want you to know, even if I'm the only one who posts it here: you made the right choice buying an investment property, and you did everything you could to make it a great property. It's not your fault, and you can recover even stronger.

It's all about mindset. 

And hopefully there will be a ton of experienced investors and contractors who will see your question and help you build a step-by-step response to this difficult setback. If you do have a tough time finding help, message me. I have limited connections in the Little Rock area and may be able to connect you with a contractor or real estate agent. I know it's not much, but if it could help, I'll do what I can.

Based on the specifics you shared, it sounds like you're working with commercial loans. Given that, you're a bit more used to some variability in the loan product. Have you ever considered a first lien HELOC?

HELOCs in general get a bad reputation because of all the misconceptions about what they do and how safe they are. You already bank with a credit union, so you're familiar with working small and local. Find a bank, the one you're working with or another like it, that will transition one or more of your properties onto a first lien HELOC.

The HELOC will replace the mortgage; the "refinance" into the HELOC will cost a lot less, giving you more capital to invest; and you'll have instant access to cash if you want to buy more property. The rates I've seen are roughly the same you already have, so no sticker shock there, and if you choose to simply pay the line down, it can happen a heck of a lot faster than if you paid down a loan because you can put all your income into the line without worrying about pulling it out in case of need or emergency.

Best of luck!

I'll give most podcasts a try, and I've thought about starting my own from time to time (never can decided what theme I'd want to do since I have a billion interests). The thing that stops me is that even though I'm a podcaster's ideal listener: I binge listen most of the work day, recommend the ones I like, and rate and review everything I listen to, the thing that stops me is that I can't convince myself someone hasn't already done what I want to do, and done it better.

Maybe I'm too hard on myself, but I suspect I'm seeing the situation authentically. There's so so so much content out there. Do you think your podcast could be new, offer new insights, or what would be your angle? If you don't have a target audience that's never been reached (i.e. BP Real Estate Rookie, etc.) why start?

I'm sure that's too pragmatic a way to view this, but doing anything is tough, and podcasting into the void that is iTunes, Spotify, &c. is going to be really challenging and a slog for years to come. Hopefully my pessimism is useful for something, even if it's to motivate you to start the podcast to show me I know nothing. Best of luck!

Long-term rentals are always going to have capital expenses. Save for them, and let the tenants build your equity position for the future. It may be frustrating to know that you'll have big ticket items coming, but consider it your version of philanthropy to the city.

You take a less than beautiful home, and through quality ownership, make it a better part of the community. Take pride in knowing your holdings lift the value of the neighborhood. It might not be a cash flow machine today, but if you stay with it, keep good tenants in it, and fix what needs to be fixed when it needs to be fixed, it will be a wealth creator for you.

Best of luck!

I can't think of a single benefit to the 401k. Someone convinces you to separate yourself from your money, you then give it to someone who charges you a fee to manage the money, but the only managing that's done is sticking it in a "diversified" fund of some sort. If you're "lucky" your employer matches up to a set percentage, but all that money is eaten by fees, so it's kind of a bummer. Then over the course of however long, people try to make you feel good about your investment by using fake numbers like average rate of return. Smoke and mirrors.

When it comes time to withdraw the money, someone gets to tell you how much, when, and at what future tax rate. Deferred taxes guarantees you pay more to the government than you would have. That leaves Roth IRAs, but they cap how much you can invest, and you still are forced to part with your money for decades.

I'd far rather put as much of my money in an appropriately designed, high cash value, whole life insurance policy, borrow out from the policy and buy real estate. I treat the policy as a bank account and repay it through my real estate rent. The policy grows tax free, not deferred, for the entirety of its existence. I have access to the cash to invest it from day one. If I die unexpectedly, my family is taken care of.

Retirement accounts were meant to replace company pensions by reducing employee income during employee working years to save businesses money. Sorry. I won't play that game. Last year, I grew my net worth over $300,000, but when I file my taxes, I'll show a loss. If I liquidated my assets, that "loss" would be worth $300,000. If I'd invested like a good employee in a 401k, I couldn't have touched that kind of growth. Seems like a no-brainer to me.

Interest rates are an illusion meant to imprison you. While it's true that at 1.5% amortized, institutions are basically giving you free money, anything between 2.3% and 6% is great.

Equity position too is imprisonment. A different way to think about equity is trapped funds. Those funds could be out there making you money, but instead they're buried in the ground earning no income for you, doing no work but allowing the bank to lend to others.

That said, I avoid refinances as much as possible because I'd rather return my money to me and not to the bank. If you refinance your monthly payments return to the beginning of the amortization schedule where more than 50%, often as much as 80% of your payment is being collected by the bank, meaning you don't strengthen your cash position much for a long time.

The option I always pursue is a first lien HELOC. (High Cash Value Life Insurance works too, but takes time to become efficient). With a HELOC, you'll likely be quoted "higher" interest rates, but due to the nature of lines of credit vs. loans, you can overcome the interest rate scam and put money in your own pocket.

The way I illustrate this is: if you put extra money toward a mortgage, but the next month you need that money back for a great investment, will the bank disperse those funds? NO! But if you do the same with a HELOC they will disperse the funds. But if nothing comes up, all the extra payments toward the principle shield you from that interest, meaning as you pay down, your monthly cashflow grows.

With a mortgage the only way to grow cash flow is to pay the thing off or restart the hamster wheel. Not a winning solution. If you're interested in a deeper explanation, reach out, and we can talk more or I can share some video resources that taught me a ton. I'm not a financial advisor, insurance agent or banker and I have nothing to gain from sharing but that I believe banks trap people by creating false dichotomies. There's more than A or B. Best of luck!

@Alecia Prigmore, with 9 months of runway, you should be in a great spot depending on your saving habits. The only issue I foresee is finding a lender to refi into a HELOC before you've owned for at least 6 months.

Perhaps look into business credit, unsecured lines?

I have a first lien HELOC that covers two of my rentals. Working with a local bank in my city, I was able to get 75% LTV, and the appraisals are VERY conservative, but for me, it's well worth it because that line of credit is my savings account, my checking account, my home for all money storage.

The line fluctuates vastly, sometimes with as little as $15,000 in reserves, sometimes as much as $175,000 in reserve. I attribute my growth from a net worth of $85,000 to a net worth of $560,000 in 18 months to the HELOC. It allowed me to be aggressive and conservative at the same time so I could pursue more real estate deals.

You may have to work hard to find a product that works for you like mine works for me, but if you find it, it will change your life. I don't say that hyperbolically. It will change your life. Best of luck!

Focus on finding a trusted realtor in a target market over targeting home age. It's not uncommon to find strong older homes that have been remodeled in the past twenty or thirty years and have updated electrical, plumbing and windows. Those are the big financial risks in early 1900s homes, and if they've been addressed, they can make for nice houses to add to your portfolio.

A good, investor-friendly agent will know how to evaluate those homes and give you good buying advice.

As for locations, the Midwest still has plenty of 3/2 houses that list under 200k, but they are getting tough to find in ideal neighborhoods. Six years ago, almost every house in my target neighborhood was right around $125,000. Now, those same houses are going for $210,000 and higher. It's wild to see. (Omaha)

Best of luck!