All Forum Posts by: Lawrence Potts

@Josue Ojeda

Welcome to REI!

My recommendation is find a mentor. This doesn’t mean asking anyone for them to spend their time for free giving away all their tips and tricks because you asked. You may find someone like that but not likely. My recommendation is finding ways to provide. Find investors in their area and see how you can provide value for them. One of my first deals was me bringing a deal to an investor and we partnered on it 50/50. I would have flopped on the deal before even going to title because we had to deal with a Power of Attorney situation and my partner knew how to work through it.

It turned out to be a good deal mostly from what I learned from the whole experience. But he was needing deals and I needed guidance. If you’re able to provide value to an investor, they’ll help you out. That’s how your entire investing journey will be. Always providing value to others.

@Jason Sung

It depends on what you do with it! If you decide to rent both sides, could you AirBnB one side? Could you rent both out to traveling construction workers on per diem and prevailing wage? What industries are nearby? People that own properties near oil fields cash flow like crazy because the companies pay the rent for the workers because housing is so limited during good oil times and labor increases significantly. Could you increase the rent by renting by the room? Can you add an ADU? Convert the garage into another bedroom? Park a tiny house in the backyard and Airbnb it? Let's be more creative here.

If you can float negative cash flow and it appreciated $100k in a year, I’d say do it. If it’s going to cost you -$700/month to earn $100k in equity in one year, that equates to paying $8400 for the month to receive $100k. That’s equivalent to getting a $100k loan for less than 9% down. But if you can’t float it and you don’t think it’s going to appreciate another $100k in the next year, maybe not. But I wouldn’t let slightly negative cash flow prevent you from tapping into $100k in equity to buy a better deal. You have to remember too that you are getting more than just cash flow from buying real estate. You’re getting tax write offs, depreciation, capital pay down, networking and relationships, experience, etc. So determine what it is exactly that you want or need from this deal and find out if it’s worth it. If it doesn’t align with what YOU want or need, then don’t do it. But I would recommend not doing the deal if it doesn’t cash flow if your goal isn’t necessarily cash flow. Write down what you want and reverse engineer that plan and see if buying this property is going to take you there, if it’s your MINS 👍

@Parker Vaughan

Hey Parker! Love the question. Best thing to do is take action. Like mentioned earlier, your first deal doesn’t need to be a home run.

My wife and I bought our first home in 2019. SFR 3 bed 1 bath for $185k because that's all we could afford in a not so great part of town. We didn't househack it but we were house poor and I worked full time and start a side hustle to keep us afloat. Although I don't recommended it being house poor, it got us to first base. I had no skills and no experience outside of working drywall hanging for a few years. I learned a lot about plumbing, electric, flooring, paint, appliances, finish carpentry, landscaping, etc. If it weren't for that deal, I wouldn't have been ready for our next deal.

We sold that house after a year and bought a 4plex. We had just enough equity for the down payment and around $20k for rehabbing. It needed a lot of work and I couldn’t afford to hire out all the work, so I had to do most of it myself. That deal was the home run. Bought for $297k, put 3.5% down and rolled the closing into the mortgage, put $20k in rehab, and refinanced it at $505k.

My suggestion is to try something and see if that’s a model that works for you. You and your wife HAVE to be on board TOGETHER. She may say yes but if she hasn’t walked the house and hasn’t been around that environment (living in a construction zone), that won’t fly.

The easiest way to start is owner-occupied. Look into your city/county codes to see what it'd take to convert a big master into an ADU. Or convert your garage. Or find a house on two tax lots and sell one of them. Or build on it. Park an RV on the lot and AirBnB it. Or you can wholesale or wholetail (don't know if it's "tail" or "tale"). There are so many things you can do, it's hard to go wrong. But nothing will happen without action.

Hope that helps! Keep asking questions, we are all here to help each other out!

@Rudy Nieves

I like the way you think!

One thing I would mention is that you may not be able to use the room rental income as part of your income. You should find out which banks/credit unions will let you use the extra income if you need it (if you haven't yet). Some won't count that income towards your DTI and you may have a hard time refinancing and getting your money back for the next deal if you can't qualify for the amount you need.

Good for thought.

@Zackarias Aitchison

I would recommend asking property management companies you’ve screened and approved where they like to manage. They’ll tell you where not to buy because they don’t want to and don’t like to manage in those areas.

Also it depends on what type of investing you are going in to. If you are looking short term, AirDNA is a great resource as well.

@James Mason

It’s a really good idea to consult an attorney and your CPA. Your attorney may know who to go through for better insurance rates, policies, etc., or have better recommendations like umbrellas. They’ll also have recommendations for rental agreements that follow state and city/county laws.

If you can do a rate refinance, 3.9 isn’t that high but you could probably drop that down a bit to save a few bucks. Information we’re missing to help you more is your market, rent rates, mortgage, maintenance, management, cap X, etc.

If those are your metrics, then yes, you'd need 30 SFH's to accomplish this goal. As mentioned earlier, you could fudge your numbers around and defer maintenance and cap X to increase your monthly cashflow but you put yourself at higher risk (not a question of if but always a question of when something comes up). You can rent per room to improve cash flow. You could put a tent in your backyard and AirBnB that. There are countless options out there!

There are a lot of things we can break down in this hypothetical scenario, but you need to determine what strategy works best for your market (you can look at other markets if you want if you're focusing primarily on cash flow).

Cash flow diminishes in some markets compared to others. Typically, more cash flowing properties do not appreciate very well. Some areas you can buy houses for $50,000 and cash flow really well but 10 years later that $50,000 home is now worth $40,000. Rent may not increase at all either. 

If $100/unit is not realistic for you, ideally you have two options: buy them at prices that meet your cash flow goals ($200/unit?) or look at different markets.

When I first started, my main goal (and only goal) was cashflow. By the time I bought my first home and finished renovating it, cashflow wasn't the most important thing anymore because my market shifted and was appreciating drastically. I pivoted and now I have cashflow BECAUSE I took advantage of appreciation, and it took less time and less units than I thought when I first started.

To answer your question though, yes, according to that hypothetical question. You have more risk with more mortgages and more houses, especially with only $100/door. Maybe you buy them off market and renovate everything so you can keep Cap X and Maintenance down since everything is new and done right (because you did it or hired someone to do it right). Maybe you go out of state and cashflow $300/door. My advice would be is to be flexible. You may have an opportunity to partner with someone to get your first deal and only get $50 in cashflow. It may not be worth it right now and you might turn it down, but if that property appreciates and you can get $50k in equity in a year, you made almost $4200/month in one year from one deal. How much cashflow could you get with $50k now? I hope that helps and clarifies things for you! Keep pushing, always make offers, don't be afraid to ask, and look at every deal from different perspectives.

Hello BP,

When is a Home Equity Loan better than a HELOC?

My understanding that a Home Equity Loan is simple and straight forward. I'm not familiar with typical LTV's or processing fees attached.

A HELOC sounds like a better option and I would bet that the majority of members would pick HELOC over an Equity Loan and would refinance over an equity loan. However, in the offset chance of a market downturn, how likely is it that a bank would close a HELOC and request borrowed credit back? Would that make an equity loan better? What causes a bank to request the line of credit back and how would they go about that process? And what are the benefits of a HELOC vs an equity loan in case I'm missing anything? Thank you

@Wayne Brooks, thank you for your response and for the clarity! Much appreciated

@Joe Villeneuve, thank you for your response!

I’m sure the seller in this hypothetical wouldn’t mind handing the title over after the buyer has paid off the owner finance note now that they are paid in full. But what about during the term? Does the owner keep the title until the buyer has paid off the note or does the title transfer before the note has been paid off? Is it transferred at signing?