All Forum Posts by: Rumen Mladenov

Make sure the addition is permitted first. If the addition was built with no permit, you may be forced to either get a permit for it after the fact, or tear it down, at least in our county.

I purchased a REO with an addition that turned out to be unpermitted. I went to the county to see what it would take to get a permit for it, and fount out that the footers are not deep enough, the pitch of the roof is not right for shingles (and it had shingles), insulation was not sufficient, etc - I basically had to either tear it down, or rebuild it from the ground up. I ended up tearing it down, and part of the reasoning was that a permitted addition would have increased my tax bill by probably more than the extra rent it would have allowed me to charge.

I do it all the time. I get 0% for 12-18 months, pay the 2-3% fee, and use the funds to purchase, rehab, or simply pay down a 5% APR HELOC. In either case I am saving money, with the only downside being the temporary ding to my credit score because of a maxed out credit card or two. Once the promo rate expires, I pay it off with money from the HELOC, and then rinse and repeat.

@Sandra Holt the biggest catch is the 3.9% annual increase. Over 20-30 years, that adds up to quite a bit!

It was the deal breaker for me, but then I decided to look at the purchase option. They would still maintain it at no charge for 30 years, and pay me if it produces less than the estimate, plus I get 30% federal tax rebate! Yes, it will take 12-15 years to get my money back, but after that I have 15+ years of profit, and the system remains mine at the end. And I help the environment, which is a major win for me. I had it installed last fall, and got my tax rebate this year. I must say it is a great feeling to watch your meter spin backwards on a sunny day!

Let me know if you make the rentals work. I would love to do that, but I was told that the 30% tax rebate only applies to owner occupied homes.

@Derrick Carpenter +1 for keeping it. I was in a similar situation a few years ago, trying not to overpay on a property with an asking price $45,000 that I figured was worth $40,000, would rent for $850. Seller lowered to $42 k, and I insisted on $40k.

Another investor bought it. Then the distressed inventory dried up, and similar houses started selling for $60k+. I am kicking myself now...

If the property is cash flowing, it is a good deal - you will have cumulative cash flow and when it is paid off you will have it free and clear. The biggest mistake would be to sit on the sideline; getting a good deal instead of a great deal is still a win in my book, especially for a newbie.

@Lee G. You can get the best of both worlds once you have some equity. Get a HELOC; you can pay it down when you have extra cash, and draw on it in a heartbeat when a new deal comes your way.

HELOCs on investment properties are not easy to find, but they are there - small local banks and credit unions are more likely to have them than the big banks.

@Jason Giomboni The bank makes 4% on its investment in our hypothetical scenario. The bank invests $100 k and in 30 years makes $72 k on it.

You invest $0, and in 30 years make $100k.

Do you seriously prefer to be the bank in this case? There are many lenders here on BP, but they are NOT lending at 4%. Nowhere near...

@Jason Giomboni I will try to explain it. Let's assume, for simplicity, that you get 100K house with 100% financing (not realistic, I know). You rent it for $1200 and your expenses including mortgage, maintenance, vacancy etc. are $1200.

You do not get cash flow, but you pay nothing out of pocket. In 30 years, you get your property free and clear. Yes, your tenants paid $172 k for that $100k house. But it is your tenants who paid it, and you the one who owns it free and clear.

@Jane A. said. 30 year fixed low rate on a rental? You must be crazy to pay that off... Your tenants are paying it down for you, focus on buying your next one. As illogical as it sounds, the bank that was happy to offer this loan to you while you had zero experience will flatly reject your application once you have 7-8 cash flowing financed properties and a proven track record as a landlord. Actually, not reject you - they will just forward you to their commercial lending division where you will be offered a loan with a 5 year balloon and a rate probably double what you have now. 

@Jason Giomboni

Let's flip your numbers. Instead of saving $100 k and buying one property that brings you $20 k a year, you use 75% leverage and buy 4 properties, $80 k before debt service, for simplicity let's say $40 k after debt service.

In 2 years you pay off one of them, you have $50 k after debt service.

Third year you pay off a second one, you now have $60 k after debt service.

Fourth year you pay off one more, you have $70k, Fifth year, you pay off the last.

What would you choose - buy a property free and clear, and in 5 years buy a second one free and clear and snowball from there, or buy 4 leveraged, in 5 years have all FOUR free and clear, and snowball from there?

Debt is a tool. Use it correctly, and it will help you achieve results much faster. I no longer use debt to buy properties, and that is not because I suddenly got afraid of it - it is simply because banks no longer lend to me at good rates due to the number of mortgages I already have. However I am at a point where the snowball is in full force, and I can keep adding properties to my portfolio while my total outstanding debt decreases, courtesy of my tenants.

Have you bought it less than 6 months ago? If so, try Aimloan.com, they have a "delayed financing" program that should work for you.

Another alternative is to get a HELOC on it, try local banks and credit unions. Not many offer HELOCs on investment properties, but some do, at least in my area.

Getting a regular cash out refinance on a rental is pretty much impossible these days...