All Forum Posts by: P.J. Bremner

@Michael Varney

If you don't know anything about rehabbing a property, I would not start with a flip personally.

It may make more sense for you to get an owner-occupied property, possibly 1 - 4 units and house hack your way up. When I first started, I found a property that had a lot of bedrooms and rented the spare rooms out so that I made money while I was living there. I was able to get an FHA loan with only 3.5% down (about $9k out of pocket for a $250k turd of a house and fixed it up as money came in - four years later it's worth over $500k). If you can handle living with other people, it's a great way to start with little risk. Keep the tenants on a month to month. If they suck/dont get along with/ etc. then you just don't renew their lease the following month. By the time I was ready for house #2 and moved out, I was making over $1,500 net on the first house, which is basically a minimum wage job and only required a couple hours per month worth of work to maintain. EzPz!

Once you get into a home and realize what things cost, what needs to be repaired or looked at, what chronological order repairs need to be done in, etc. then you can look into flips more realistically.  Or, if you can find a mentor that will take you under their wing to flip with, you can go straight to it.  Since that seems to be a "unicorn" scenario, I would just get a house with lots of rooms and house hack your way to financial freedom (or units if they are affordable in your area.  They were $750k+ in my area when I started looking so I had to stick with single family).  My first house was 5 bedrooms and I converted the family room into another bedroom.

Best of luck!  Feel free to hit me up if you have any questions as I am an open book.

@Patrick Fraire

I saw a wholesaler trying to offload a home with very similar stats in Diamond Bar recently, looked like a great deal.  He wanted $485k for it and I had it comped in the mid - high $600k range.  Homes in that area do not make good cash flow properties, but if you can afford the mortgage and don't mind having negative cash flow, then it might not be a bad idea.  I would caution you about the negative cash flow though as we may be reaching a peak in home prices soon, so hoping and praying for appreciation may be a risky move at this time in the housing cycle.

I own several homes in the Pomona and Montclair area that I use for student housing.  I got into each house at roughly $50k per room (I rent by the room) but at your price you're looking at well over $100k for a single bedroom.  You can rent a bedroom in this area furnished with utilities included for $700 or $800 if it's a master.  For my business model, I would be priced out.  But that's not to say it doesn't work for you, just approach with extreme caution.  If you can't get anywhere with the seller, let me know and I can give it a go.  I buy homes in this area for cash to flip, maybe we can work something out there?

Either way, I'll be more than happy to talk some numbers with you about the rental side as well as the flip side.  Best of luck!

@Eric Dutkiewicz

Thank you for your service!

As for the 2-years thing you mentioned, I'm not 100% positive but it sounds like the tax exemption rule the IRS has about gains on your home.  It doesn't have anything to do with financing though and works like this: If you have lived in a home for 24 months out of the last 60 months, you can sell the property and NOT pay taxes on any gains you may have accumulated.  Ex. You buy a home for $100k, live in it for 24 months + 1 day, then move out and start renting it out, then decide to sell it (as long as you sell it within that 60-month period) for $200k, then you will get $100k profit from the deal and pay 0% taxes on it.  Had you not qualified for the tax break, you would have to pay capital gains on the $100k.

If you plan to hold the property and not sell it anytime soon, then this is irrelevant, which brings us back to your original question about the financing part. If you plan to buy a home and rent it out from the start, then you will be looking for a non owner occupied loan. You can get a loan immediately without ever living in it (no 2 year wait period) with an investment non owner occupied loan. You are correct, this is called Real Estate Investing (REI) or more accurately for your strategy as Buy and Hold.

My best advice is to use the BP resources to your advantage.  If you are looking at a rental property, make sure you know the numbers very well before you buy.  Make sure you accurately estimate expenses (tons of posts on here as to how that's done) and buy the property right (don't over-pay).  There is a buy and hold rental property calculator on BP as well that can assist you will all of this.

Best of luck and congrats on actually taking action!  I know it may not seem like it right now with only one property, but you are in the minority on BP that ACTUALLY DID SOMETHING lol You should be proud of yourself and I look forward to seeing your future success.

@Guevara M.

I buy all of my used equipment from the repair guy that i've used for several years now so he gives me deals on these things.  I tend to buy stuff that is a few years old (definitely not the newer technology, no touch screen, etc.) and I'll usually spend $100 - $150 each so around $200 - $300 for the pair.  If it's for a rental, you don't want fancy.  They will destroy it.  I would rather replace a $100 washing machine because the tenants decided to do stupid things (believe me, I have good stories lol) than replace a $500 piece of tech.

My advice would be to see if there are any appliance repair guys near you.  Call them up and ask if they sell used stuff as well.  Often times they do.  They usually take other people's old machines that are broken, fix them up and sell them (appliance flips!).  The great thing is, if there are any issues, they are the ones to fix it, oftentimes for free since they sold it in the first place.

@Jeff L.

You might want to do some research on Note investing (buying other people's mortgages).  I am not currently a note investor but am doing my research on the subject and there are several types of notes you can buy and different strategies to implement.  If you are looking for a hands-off approach, I think you might want to look into Performing notes (as opposed to non-performing).  These are mortgages that are current on payments for at least the last 12 months.  You can hire a mortgage servicing company to collect your payments for you as well so you literally don't have much to do.

There are plenty of note investors on BP, I'm sure they can chime in and give more info as I have not yet pulled the trigger on one.

@Ray Harrell

As a landlord myself, I greatly appreciate AWESOME tenants such as yourself.  I'm sure the majority (as in more than 50%) of tenants are great just like yourself.  The problem arises when that minority moves in and destroys the rental, causes havoc for other tenants in the house, forces you to go legal which is time consuming and expensive, etc.  The real problem is that when you have a BAD tenant, it MORE THAN makes up for the majority of the good tenants so that we as landlords must be EXTRA cautious in our selection.

@Toussaint Hill

I am interested in anything Southern California.  Thanks!

Hey Evan, I just saw your reply.  It doesn't notify me unless you use the "@" tag like @Evan P.

I am definitely interested, own a few homes in Pomona and Montclair and looking to expand in this area.  Let me know what you got! : )

[email protected]

@Sunny Shakhawala

Why not use the cash, get the full return and if you come across more deals than you have cash, leverage up with the LOC. It's actually a very common strategy employed by successful stock traders. They only leverage up when they have to and have good enough trades.

@Mary White

Yes there are some lenders that will give you a HELOC for 90% LTV (more favorable rates at the 80% though) and so you can use the HELOC to pay off the main mortgage and carry only the HELOC. As far as having a loan called, I've never heard of anyone doing it before and as long as you're paying your HELOC payments on time they have no reason to call it in. The only way it will ruin your credit score is if you stop making payments.

Here is the difference between holding onto the cash or using the HELOC. Let's say you have a $100k mortgage with a $1000 P&I mortgage payment (just to make the numbers easier) and have $100k in cash in the bank.

Scenario #1 - Keep the cash in the bank and pay the mortgage regularly

• You will have $100k liquid cash to use for whatever you wish, earning probably ~$10 - $15 in interest per year for a net return of 0.00000000001% (sarcasm, but it might as well be 0% because the returns are garbage).
• You will continue to make the $1000 monthly payment, part of which goes towards interest and is partially lost (partially because you can write mortgage interest off).

Scenario #2 - Refinance the home with a HELOC

• You still have the same $100k loan in the beginning, but instead of having it as a fixed 30 year, it's a variable rate interest only. If you plan to make minimum payments, then forget about the HELOC because you'll be throwing money away.
• Use the $100k in the bank to PAY OFF the balance of the HELOC, effectively reducing your mortgage to $0, which saves you $1000 per month in mortgage payments.
• You still have access to up to $100k that you can pull at ANY time in any amount UP TO $100k.  Let's say you have a deal that only needs $30k, then you pull $30k and only pay interest on $30k.  If you take a home equity loan out for $100k, then you pay interest on the full $100k regardless of you using that money or not.

To sum it up, the HELOC gives you more flexibility and an immediate return on investment if you're going to be paying down the mortgage fast. The other part that I didn't mention, let's say you only have $50k in cash and you want to take the HELOC for the full $100k. Instead of having a $100k mortgage payment, you put the $50k against the balance and your new HELOC balance is only $50k (which means you only pay interest on the $50k, NOT the $100k).

Another thing I worked out a few months ago was this: let's say you have $0 in the bank currently but want to pay the mortgage off faster and you can dump a large sum of money into it. You can actually get compounding results by doing so with a HELOC that you won't get with a regular mortgage. Say your balance is $100k and the payment is $1000 per month. You want to start making $3000 monthly payments to pay this bad boy off fast. First month, you put $3000 and $2500 goes towards principal and $500 towards interest (using arbitrary numbers here, just to illustrate a point). So the next month, your mortgage balance is $97.5k and the payment goes down to $975, but you still make that same $3000 payment. Your second payment will have MORE towards principal and less towards interest because the balance shrank, meaning you are now lowering your total cost of the loan AND lowering the monthly payment each time.

When I calculated it out, I was able to pay off a house much faster with a HELOC using accelerated payments than I was with a traditional loan, PLUS it minimized my monthly expense for that house if I ever had any issues with cash flow that month. ON TOP OF THAT, when i put $3000 into the house payment, I am able to pull just about all of that back out the following month if I needed to. If it was a traditional mortgage, that money is locked into the house until you pull another home equity loan out. Every time you take another loan out, you incur origination fees, etc. HELOCs are generally cost free to open and have $30 - $50 annual fees to keep open.