All Forum Posts by: Scott Elliott

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $95,000

3 Bedroom 1 Bath to 4 Bedroom 2 Bath SFH renovation purchased in our first LLC ‘partnership'. The LLC is owned by our trust (75%) and our partner (25%). For our ownership % we are responsible for finding the right properties, funding/securing the property and renovation budget, and then managing the rental phase while our partner completes/manages the renovations and rehab.

What made you interested in investing in this type of deal?

We focus on on SFH in the suburbs of St. Louis, MO and this property has a lot of potential with our largest rehab to budget date.

How did you find this deal and how did you negotiate it?

A colleague of mine who knows that we rehab properties for rentals and referred us to the owner (his sister) who lives out of state but has been trying to sell it. The property had renters in it who had completely trashed the property and continues to live in the home with under-market rents and poor maintenance.

How did you finance this deal?

I funded the purchase and rehab with a Home Equity Line of Credit on our primary residence.

How did you add value to the deal?

Widened driveway to support multiple cars, completely renovated the kitchen with new cabinets and appliances, completely renovated the upstairs bathroom with new everything, refinished all floors, replaced all windows by framing down custom window spaces to fit standard windows, upgraded the electrical box and buried the service, painted the exterior, finished the basement to add another bedroom, full bathroom, and living space.

What was the outcome?

Work is still being completed but we are on budget and this should be our largest return to date.

Lessons learned? Challenges?

This is our first JV in our new LLC with a partner. I am not the handy type and absolutely hated working in our prior renovations and was happy to hand over 25% of our business to work with someone skilled and knowledgeable in this space. We're still learning to fine-tune our processes in communicating the work regarding timelines, expenses, and schedules but it has been positive so far. We just picked up another smaller home to work on concurrently with this one and will reflect after.

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $95,000

3 Bedroom 1 Bath SFH purchased in our first LLC Partnership. The LLC is owned by our trust (75%) and our partner (25%). For our ownership % we are responsible for finding the right properties, funding/securing the property and renovation budget, and then managing the rental phase while our partner completes/manages the renovations and rehab.

This property began as a 3/1 with 2 walkouts and a carport on a large corner lot but we will are currently turning it into a 4/2 by completing the basement with a new bedroom, full bathroom, and a living room. We anticipate rents to be around $1250/mo or slightly higher with a renovation budget of around $22,000. More to come!

What made you interested in investing in this type of deal?

We focus on on SFH in the suburbs of St. Louis, MO and this property has a lot of potential with our largest rehab to budget date.

How did you find this deal and how did you negotiate it?

A colleague of mine who knows that we rehab properties for rentals and referred us to the owner (his sister) who lives out of state but has been trying to sell it. The property had renters in it who had completely trashed the property and continues to live in the home with under-market rents and poor maintenance.

How did you finance this deal?

I funded the purchase and rehab with a Home Equity Line of Credit on our primary residence.

How did you add value to the deal?

Widened driveway to support multiple cars, completely renovated the kitchen with new cabinets and appliances, completely renovated the upstairs bathroom with new everything, refinished all floors, replaced all windows by framing down custom window spaces to fit standard windows, upgraded the electrical box and buried the service, painted the exterior, finished the basement to add another bedroom, full bathroom, and living space.

What was the outcome?

Work is still being completed but we are on budget and this should be our largest return to date.

Lessons learned? Challenges?

This is our first JV in our new LLC with a partner. I am not the handy type and absolutely hated working in our prior renovations and was happy to hand over 25% of our business to work with someone skilled and knowledgeable in this space. We're still learning to fine-tune our processes in communicating the work regarding timelines, expenses, and schedules but it has been positive so far. We just picked up another smaller home to work on concurrently with this one and will reflect after.

@Zack Berridge Thanks!  Im happy to help.  

I think that PNC Bank just moved into your area.  I used to work there and they allow (or at least used to allow) HELOCs up to 90% on your primary and 75% on 2nd/vacation homes. They also had good fixed rate lock options if their product hasn’t changed too much in the past 3 years or so.

I’d start there.  Good luck and congrats!

The points and lender fees seem high.  Based on the information that you shared you should be able to find a Conventional Mortgage lender that services their own loans closer to 4.00% and much MUCH lower fees.  This is assuming that the property qualifies for conventional financing which most 4-family properties should.

I’m not from the area so I don’t have a good lender to recommend but wanted to share an overview of HELOCs so that you can ask some important questions to the banks/institutions that you contact.

First up, I wanted to congratulate you on being in a position to access sizable equity in your home for future investments. In my opinion the HELOC is an amazing tool that allows you to make cash offers on properties and self-finance rehabs possibly making good deals GREAT deals! I also use my HELOC for this purpose.

As I'm sure you know, the HELOC is an open-ended revolving line of credit allowing you borrow from your home's equity and only pay interest on outstanding balances. However, a HELOC from one institution to another can be very different.

1. In general, here are the areas of HELOC that will typically differ from lender to lender:
2. 1) Closing Costs - there are a lot of lenders that will not have application fees or closing costs for HELOCs.  It’s actually not too difficult to find a lender willing to pay for their own valuations/appraisals so long as you agree to keep the line open for X amount of years (I typically see 3 years as the norm).
3. 2) Annual fee - because banks are willing to cover the costs of setting up the HELOC, you'll commonly see an annual fee, too. Here in Missouri the maximum they can charge is $50 and I see this just about everywhere for those institutions that don't charge the upfront closing costs.
4. 3) Combined-Loan-To-Value - most banks will have a maximum Combined-Loan-to-Value (balance of all debts/limits on the home divided by the home's appraised value) of 75%-80% but you can find lenders willing to go out to as high as 90% CLTV. The rate may be a bit higher to get access to that extra 10% but for the purposes that you've stated that rate is better than a private lender or other revolving alternatives.
5. 4) Terms - possibly the most important factor that differs greatly from bank to bank. It might sound strange but for an investor looking to use their HELOC of short-to-mid-term financing (ie: BRRRRing and knowing that you'll plan to payoff the loan balance as soon as you refinance the investment property) the interest rate might be the least important factor. This is because the HELOC's minimum payment typically breaks down as all interest accrued on the outstanding balance over the last month + a defined portion of the principal + any fees. That "defined portion of the principal" could be based on a 10 year amortization (1/120 * the balance) or 30 year amortization (1/360 * the balance) or anything the lender sets up. As you can imagine, the minimum payment then could vary greatly if your paying 1/120 of $100,000 ($833.33 + accumulated interest) or 1/360 ($277.78 + accumulate interest).

Now this might be a bit of a simplification as there are still other things to consider like availability/efficiency of drawing funds, interest only options, fixed rate lock availability, the draw period/time that the bank gives you to draw on the line,etc.  But these are the big ones that I think greatly differentiate HELOCs from each other when being used for investment purposes.  Good luck!

Hi, @Pablo Flores.  I agree with @Bee Snider when she says that it depends on your plans for the funds.  First off, though, CONGRATS ON OWNING YOUR HOME FREE AND CLEAR!

If you are looking to BRRRR, then I love the HELOC for this purpose and personally use mine for this same reason. Here the HELOC will allow you to make the cash offers that could be the difference maker between a good deal and a great deal! Additionally, you can finance your rehab through the HELOC and, once you're done and the property has been rented and owned for 6 months, simply cash out refinance the new property to pay off your line. The risks here are that you don't refinance enough back out to pay off your HELOC but if you're able to budget/account for this then its an excellent tool. Every BRRRR has the risk of having to leave cash in and you just have to acknowledge that your ‘cash left in' has interest until you pay it back off.

However, if you're just looking to buy a more-or-less turnkey property with as low a rate as possible and as little cash out of your pocket without using a partner or investor, then taking the cash-out mortgage on your home to acquire the property would be the way to go. Your primary home will yield the lowest rate AND you'll now have an investment property free and clear if you choose to sell it later OR leverage it for a future investment. Accessing the equity in the property will take more time and money than the HELOC will because its readily accessible when you need it but I also understand the appeal of being able to confidently know/budget the monthly expenses without fear of a variable rate.

Short story: my wife and I are 33 and we own 3 rentals here in Missouri.

Long story: We got started around 27 by renting out our first home (a 2 bedroom condo in St. Louis near Washington University) after the mortgage collapse left the property underwater and renting was our only option to allow us to ‘grow up’ and move to the suburbs to start thinking about a family.  We learned a lot about being landlords while renting this property out for 5 years or so ultimately selling it to our last tenant who decided to stay in St. Louis for medical school.

That same year, we purchased our first Short Term Rental at the Lake of the Ozarks (you know, the lake from TMZ where pools and bars were filled with rental potential regardless of COVID).  This was a 3 bedroom condo in a great location that we only found after our offers on 2 bedrooms kept getting in a bit too late. On our last offer, the agent mentioned that a 3 bedroom was going to be listed soon in the same complex but was more than we were looking to spend on the purchase and wouldn't leave us any money left over to make updates. The condo was huge, the view was beautiful, and the decor was done in some timeless pink and teal (pink wallpaper, green/teal carpets, and the rest to match). We ended up renting this one out priced at an ‘ok' 2 bedroom rate for 3 years and sitting on a lot of the Income as we saved up for a renovation. Finally, we had enough to rehab the entire thing ourselves over weekends from February-May while being coached and led by my father-in-law. This rehab was our introduction to the BRRRR Method, albeit a 3 year BRRRR. The work we did doubled our rent YOY and the new appraisal came in at $35k more than our purchase appraisal on about a $20k reno.

We then purchased our 2nd Short Term rental last fall in the same complex.  This one is a 2 bedroom condo needing far less work but we were able to move quickly and get a good deal by offering cash for the purchase. Not only did this allow us to buy equity by doing a quick close in cash for someone who needed to get out, but it allowed us to place a 2nd home/vacation home HELOC on the property to be used for future investment opportunities. This condo has outproduced our expected revenue already with almost no work/renovation expenses (only minor maintenance).

Then, on June 30th of this year, we officially purchases our first formal BRRRR project using that HELOC that I just mentioned: a 3 bedroom SFH.  The property was a Fannie Mae Foreclosure that failed inspections for at least one buyer using a USDA mortgage.  The property had clearly been cleaned up by the bank making the cosmetic work look really good for a rental in this market compared to what I’d been shopping for.  However, the USDA mortgage requirements meant that the buyer most likely didn’t have the ‘cost to cure’ funds needed to get over the finish line to appease the lender’s inspection and this worked in our benefit allowing us to buy the home for $27,500 less than the accepted offer by that buyer.  Over the next 2 weeks we’ll be wrapping up the renovation that will come in between $8000 and $9000 with a tentative renter already lined up: a mother of one of the neighbors who came to introduce themselves while we were doing work.  This surprise/luck means that my holding period will be cut 66% (1 month instead of 3) and provide us a long-term renter from the start.

Next up: I'm currently working on an offer/bid for a Short Sale in St. Louis County. This will be our first Short-Sale and I'm currently researching the process to educate myself while attempting to build relationships with Hard Money Lenders from BiggerPockets due to my self-financing option (the HELOC) being tied up in the SFH purchase and rehab. Wish us luck!