All Forum Posts by: Larry Turowski

@Sheila Gonzalez Don't even consider a HELOC if you do not have financial discipline and will either run up your cc again or use your HELOC like a piggy bank.

That aside, this bank seems to be asking too many questions. You don't need to lie but you don't need to give them more information than they need, either. If they won't approve you for the maximum HELOC you could possibly get, tell them you'll shop elsewhere.

It is reason enough to say that you'll pay off your cc, and it would be nice to have the HELOC available if needed, that you have no immediate plans to use it (which is true unless you have a house under contract) but what it would allow you to do, for example, is to keep a much smaller cash savings rainy day fund and instead use that money to further pay down debt (HELOC and mortgage).

@Daimily Santiago-Leon l assume you are talking about empty houses in the inner city.  It is very difficult to flip in the city.  The cost of rehab is just so high compared to the value of the houses.

As @Thaddeus D. said it is a not a buyers market right now. But I don’t see prices dropping back down drastically.  It’ll be much more difficult to find good deals but they are always there. 

@Andy Chen While doctors are pretty smart it is not always true when it comes to investing.  Congrats on your success, but:

"...virtually all real estate will be able to generate favorable returns even the ones that were purchased with zero strategy."  This is NOT true and a dangerous attitude to have.  I'd go with most, but not virtual all.  And even with most it may may take a long time to heal from a poor purchase.

"...it is generating a 9.6% cash on cash currently with probably 100k unrealized appreciation in 10 years."  So you are netting $28.8K per year.   I assume rents have gone up and you were not netting that when you first started renting it out.  Without leverage you are doing only marginally better than historic stock market return (and, in fact, way worse than returns for the past 10 years--stocks have about tripled).  And that for an asset that is much less liquid than stocks.  Also, by your our estimation, you are netting $28.8K on an asset that is worth $400k, and that is really a 7.2% return (though it may still be appreciating).  So really right in line with historical stock market returns.

The beauty of real estate is the it is 1) much easier to buy advantageously (get a good deal) than with stocks--at least for the average person, 2) you can also buy, even without leverage, properties that out perform the stock market, and 3) you can safely leverage 70% to 95% without much difficulty, making your money work much harder for you.  It does take some attention, though.  The beauty of an index fund is that you only have to thing about not withdrawing during a market downturn.  Otherwise you can pay no attention to it at all.

@Carlos Pena It is unlikely that you will find a pre-foreclosure that would be a deal for what the people owe, otherwise they could just sell it the traditional way and get out from under foreclosure.  You're other options are a short-sale or subject-to purchase.  You can't assign short-sales so you'd need to be able to close.  And the timeline for closing it completely unpredictable.  It can take months or even more than a year even if the bank is willing to sell at a price that works for you--and usually they aren't.   Sub-to deals are really not for the average investor--at least not to do legally and with integrity.

@Janikka K. White All you care about it getting a loan using your house a collateral.  (1st lien just means that it is first lien in line to get paid should the collateral be liquidated to settle the loans against it, but that is fairly irrelevant to you.)

Why do you want the money? Do you have an immediate use for it? If so, and if it is the maximum amount you can get, then you'll likely want to get a standard mortgage. But probably you don't have an immediate use for it. More often than not, a HELOC is the best way to go. Why? Because it is a guaranteed line of credit. It is as good as having the money, but you don't actually take the money until you need it and then you only take as much as you need. So you only pay interest when you need it and only on the amount you took. Also, it is revolving. That means if you can pay some or all of it back, pay interest only on the amount that is still withdrawn, and still have access to the entire line of credit until the withdrawal period expires, usually 10 years. And you usually have another 20 years after the withdrawal period ends to pay it back.

One drawback is the interest rate is usually higher than a standard mortgage and is adjustable. But not having to pay interest on what you are not using and having flexibility generally make a HELOC worth it.

@John Smithe Yes, as long as your have an inspection contingency.  Where I invest there is also an attorney approval contingency, so sometimes as long as I can get into the property the next day I can make a sight unseen offer even with no engineers inspection contingency, get it accepted and then do my walk through the next day.  I'd only do this if I really had every intention of buying.

You're in a competitive market.  You need to find a niche where you can succeed and get the results you want.  But don't feel like you have to win.  Winning can be losing if you let the heat of the competition cause you to make bad decisions.

For very small items this might be worth the risk.  Due to the risk of the deal falling through--it has happened to me at the closing table--I wouldn't ever do any major improvements.  But I'd be willing to lose $300 to speed things along as you did.

It is hard.  Most investors don't pull out 100% of cash invested most of the time.

Having a narrow business model like Jason can work if you get enough deal flow.  You could say the same with marketing.  Buying $100K homes only is fine as long as you have enough deal flow.  I flip--in two states now--and buy and hold.  For buy and holds some I do finance out 100%.  Some are in A-B neighborhoods, some in C-D.  Now I'm branching out into small complexes.  All of this broadening of my scope is to broaden my deal flow.

@Alessandro Struppa What you are talking about is "cash on cash" return, or CoC. This is computed as the first year of cash flow divided by the cash invested, not the purchase price. So, regardless of the purchase price, if you have $20K into a property between acquisition and any renovation costs, and your yearly cash flow for is $2K, then your CoC return is 10%. This does not include equity growth or appreciation or anything else. It is an incomplete picture. But assuming that the first year is predictive of the following years--and this is a big assumption, you better watch out---then it tells you that besides everything else, the investment will not be adding to your liquid cash, not draining it, returning 10% liquidity to your cash invested per year.

The idea with many investors is to put as little down as possible. For the BRRR method, the idea is to buy for cash, rehab, rent, and refinance out. And they compute CoC from that point. Ideally, they refi out 100% or more of their total funds invested. In that case, CoC is infinite (or meaningless because you can't divide by zero). And as long as the property is cash flowing even just $100/mo per door or unit, even though that isn't much, it is like a free $100/mo and plus the equity is growing. They can BRRR-Repeat over and over with the same initial funds, each producing $100/mo per door and hopefully requiring next to none of your time.

@Ryan Stevens Rucker I would have started earlier.