All Forum Posts by: Spencer Cornelia

@Spencer Harvey Using a HELOC as a down payment is a great day dreaming exercise, but I would highly recommend staying away from this strategy. What you're suggesting is buying a rental property with 100% leverage. You don't know you're over leveraged until you are.

Too many people on BP have been killing it the past few years.  All of their decisions have been winners, but way too many people haven't been punched in the mouth yet.  Their "decisions" look great because they're working out now, but what happens when they're given some tough luck.

Listen to people talk about 2006-2007. This is exactly what they were saying was going on. Investors thought the market was only going to go up or that their strategy was indefensible, until it wasn't. They used HELOC's, bought properties full value, refinanced multiple times, etc. And when the recession hit, people lost EVERYTHING. Why? Because being over-leveraged creates a house of cards. And one event, yes one simple event can cause all of the cards to tumble.

Here's the risk you're playing: you aren't aware of what can go wrong in your investing career.  And you also don't know the extent of it.  When you are 100% leveraged on a property, you are praying that nothing goes wrong and everything goes according to plan.  When you aren't so leveraged and have reserves, you can handle the moments when life really throws you some curve balls.

This doesn't mean that your strategy isn't sound. All I'm saying is that you're opening yourself up to a world of risk you aren't even aware exists. The only way I'd recommend anyone considering using a HELOC for buy-and-hold rental properties is that they have no interest in finding deals, they have a boat load of cash for reserves, and are experienced enough to know how to handle risk.

@Michael Bonanno super casual meetup. We're basically friends getting together. Sales pitches aren't allowed. We don't have any agenda. We just sit around and talk real estate, the economy, anything relating to finance and real estate, etc

I think we're the only meetup in town without an agenda which is why it's getting so popular.

@Brandi Scharrer any time is fine. Almost everyone is there by 8:30am

@Christopher Wasowicz Since you've limited this topic to BRRRR....

IMO, the easiest way to truly BRRRR is to use all cash and HELOC. because you have no track record, any hard money loan is going to be very expensive and take away the opportunity to BRRRR.

The downside is that things are going to go wrong and you don't know how wrong they can go. Once you use up all cash and HELOC, you're opening yourself up to losing everything. If you underestimate expenses, you could find yourself in a pickle really quickly.

The upside is that your costs are going to be low enough to allow you to BRRRR nearly any property that needs a lot of work.

For your situation....

spend the next few months networking with every wholesaler in your area

Find a deal where your purchase price and rehab is under $100k

Make sure that you can refi into a 30 year loan AND the expected rent is ~1.2 of expected PITI. Confirm this before purchasing the property

That's just one option.  Personally, I would aim to sell your first rehab project as things will go wrong, your budget will be broken, and you'll need to leave money in a deal that cash flows a week's worth of groceries.

To answer your questions...

What would you hold in reserves?  Since I would highly recommend using cash/heloc over a hard money loan, everything you have will be reserves, including credit cards (which I hope you have access to)

Other people's money?  I would let others know when you have a deal locked down so that if something awful were to happen and you were like $8k short of finishing the project, they can loan the money and receive some equity.

@Patrick McMillion Does the deal make you money?  Does the deal align with your goals?  Does the deal align with your financial strategy?

I bought a house with an ugly exterior on a noisy road in a commercial area.  It grosses $3,650 a month right now on $2k expenses with me living in it.  When I move out and treat it like a rental, I'll be cash flowing over $2k a month.

My point: every deal is different, every person's strategy is different, how people analyze deals is different.  I personally wouldn't even consider the metric you've provided.

@Garfield Thompson you have three choices:

1) Continue to save more.  Realistically, this is the only option you have.  $5k just isn't enough cash to buy something and not risk losing it all if anything were to go wrong in the first couple months.

2) (This is unlikely) Talk to a seller who has a listed property that hasn't sold and has been on the market for 100+ days.  Buy the property using a lease purchase, lease option, or mortgage wrap with $0 out of pocket.  Use the $5k for furniture.  Rent all rooms.  You should cash flow pretty nicely.

3) Go to the local gentleman's club.  Spend the $5k flashing money all night and hope to run into a guy with money who likes the entertainment you bring.  Meet up with him to discuss real estate, whether in the club for a second night or at Starbucks, and pitch him the idea of bringing the money to a deal you find.  You go 50/50.  I find this to be the riskiest choice of the three.

@Robert Collins Seller financing can be pretty broad.  If you're purchasing a property using a Lease Purchase/Option Agreement, you won't have any closing costs until the actual purchase is made and you go through a title company.

The costs coming from a title company will be the same no matter how the property is financed I'd imagine.

@Eric Oszczypala if you were to hand me $100k today, I would...

1) Rehab a multi family apartment building in the Midwest (6-12 units)

2) Refi apartment building and use cash flow to live off

3) Use cash to flip houses for the next 5-10 years

4) Use profit proceeds to purchase 4+ bed houses in Las Vegas and rent by the room

The only course correction I would consider is if there is some sort of major downturn and home buyers aren't able to purchase houses, then I'd either flip houses buying and selling on seller financing terms or switch over to rehabbing only small apartment buildings.

@Isaac Summers can you check the link?  I tried clicking on it and received a Page Not Found.

My guess is that you inputted appreciation into the equation.  Over time, if a property appreciates, you will profit more than the (original) sales price of the property.  If that's not it, then I imagine I'll need to see it to better diagnose.

Or maybe the profit is represented as the total profit found over the 30 years and they combined it into one number at the end?

@Melvin Allotey Redfin has estimated value at $380k.  I have no idea what you can sell it for, but why not sell it?

Or maybe you find a local investor who will joint venture with you where they provide the rehab money, perform the rehab money, and then get a fair equity split when the house sells (after their rehab money is returned)?

Building your own multi family as your first investment sounds really risky.  There should be a good bit of equity from the sale to allow you to move forward in real estate investing from a very powerful position.  Not many beginners begin with $80k+ in cash.