How I Finally Got Out of My Own Way and Started Investing in Real Estate

by | BiggerPockets.com

As somebody who moves like greased lightening (or so I have been told), once I make a decision to do something, I research it to the hilt and pull the trigger. This is just how I operate—you are either with me or you are not. Luckily for me, I found a great partner who can hang on for the ride and who helps fuel me and my grand plans. The way we started investing in real estate has been no different.

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Background

The quick rundown is that I have been thinking about investing in real estate for years. Still, for one reason or another, I just couldn’t do it. First, my ex-husband and I were in debt up to our eyeballs because I stayed home with the kids when they were young. Then, I got divorced and was so broke that I was on food stamps. This meant that I obviously didn’t have the capital—or the time—to invest in real estate. As I started to get out of debt and off of food stamps, my perspective started to change.

I met Bryan, and we eventually created a blended family of seven. After the seven of us lived in my 1,000 sq. ft. primary residence for about a year, we decided something had to give. I have a background in the building industry, so I do a lot of my own renovations; however, I did not want to take on a full addition to the house to increase the square footage with the seven of us living there. Plus, that would have put me into more debt as opposed to getting out of it. So, after doing some market research and a little digging, I decided to put my house on the market and embarked upon the journey to find something larger.

Related: 5 Habits of Highly Miserable New Real Estate Investors (& How to Kick Them!)

Selling the House

I made the decision to sell the house in early February. I did the research and found a fantastic real estate agent (who I still use for everything today), spruced it up to get it market ready, and put it on the market by early March. At that point, we found a house perfect for us just five minutes north of where we currently resided and put in an offer. It was the first house that all seven of us loved, so it seemed like the one. There was a bidding war, so I took the advice of my real estate agent and changed my due diligence (DD) and earnest money (EM), as well as wrote a custom letter with pictures to the seller. And we won the bid!

My house went under contract five days later, and we set everything up for a simultaneous closing four weeks out. So, when I say that I move like greased lightning, that is what I am talking about.

upgrade-vacation-rental

The Logic

Ultimately, I would have loved to keep that property as a rental because I purchased it in the downtown area 15 years ago for dirt cheap. Not only that, but the bones were fantastic, and I had fully renovated the house throughout my time living there. This included turning it into a 3/2 from a 3/1.5, adding a skylight, building a laundry room. and putting built ins in almost every room of the house—plus a built-in breakfast nook with storage.

But because of the fact that I still had a small mortgage on that property, plus some debt from getting my Master’s Degree and renovation, I couldn’t possibly see how that would work. Instead, I sold it for about three times what I purchased it for, paid off all of my debt (including my car), put about 50% down on the new property, and put some in savings. Therefore, our mortgage at the new property (which is only new to us and was built in 1975) is almost exactly what the mortgage was on our smaller property. And this one has an in-ground pool and my own office, so that I don’t have to keep moving my laptop around!

While I couldn’t comfortably keep my original primary residence as a rental property, getting rid of all of my debt and creating a better nest egg helped me gain the confidence to finally dip my toe into the real estate investing pool.

Beginning to Invest

I started listening to podcasts and reading blogs to gain other knowledge surrounding the best ways to get into investing with very little capital. There is a plethora of information out there, which is great, but can be hard to weed through sometimes. It has been helpful that I’ve been contracting for a group of real estate investors for almost two years now, so I have learned a lot about investment properties in different markets.

Since I am a Holistic Health Advisor and Freelance Writer in the finance space, I was planning to attend this awesome conference for people in the financial space called FinCon in October. While I was there, I started networking and inquiring about anyone who might be in the real estate investment space. It was there that I was introduced to Mindy Jensen and Scott Trench. They were not only a wealth of knowledge, but have such great personalities that I had to find out more about who they worked for. They told me to check out the BiggerPockets website and podcast, and I have been hooked ever since!

While at FinCon, I was able to hook up with a group of other real estate investors, and we ended up getting into a sort of round table discussion for a couple of hours. I gleaned much useful information from them, and I was even lucky enough to speak with two investors who have properties in the market I was honing in on. I left FinCon with a ton of notes and a more brightly lit fire to get this ball rolling.

Financing

Financing seemed to be my biggest hurdle, as I have found out seems to be the case for most of us. I spoke to the lender that I used for my new primary residence because he is great at creative financing. He told me to work on a HELOC since I have a lot of equity in the house. I tried to get one through my mortgage company, but they turned me down because they don’t like that my income is all 1099. That is the most frustrating part for me with any financing because while I have a great credit score and always pay everybody on time, since I am not a W2 employee (and haven’t been for years), I am considered more risky. I am sorry, but I think that is ridiculous!

Hard Lenders

So I went back to the drawing board and started looking at hard money lenders. I heard about Lima One and found out that they have a local branch, so I reached out to them. Based on the information I received, I thought that would work out well for a first property. Still, the interest rates were pretty high, so I would have to figure out how to get a longer term mortgage on the property within a few months to save some of that interest.



Related: The Ultimate 60-Day Action Plan for the Paralyzed Newbie Longing for a First Deal

LLC Mortgages

Then I ran across another snag that I am still trying to figure out. It appears that most lenders don’t want to give you a mortgage if you are purchasing rental properties in an LLC, which we are. They only want to lend you the money if you purchase it in your own name. We could do and then deed it over to the newly formed LLC I created solely for investment properties—but there is this lovely little “due on sale” clause that a lender can decide to activate when the property is deeded to somebody else. This means that the entire note is due immediately. I am still trying to figure out how to feasibly get around this and would love suggestions!

HELOC

Once I decided that I didn’t want to use hard money for our first purchase, I started talking to my small bank where I have my current business account. The banker and I have become very good friends, probably because the bank is so small and we really just see eye to eye. So I asked her about getting a HELOC, even though my mortgage is with somebody else. She looked into it and told me that they could do it since they already have all of my income information anyway.

They required an appraisal, but since we just bought the house in April and I still had the appraisal document from the purchase, they accepted that for the HELOC to process. I talked to her about getting this and had the HELOC in my hot little hand in less than two weeks. Once we had that, I knew that it was time to get started investing in our first property.

And it was time to hit the ground running!

Newbies: How is your journey to your first investment property going?

Comment below!

About Author

Shanah Bell

Shanah and her partner Bryan are buy and hold real estate investors in the NC market. They own BellBert Investments, LLC (contact: [email protected]) and are always looking for new ways to creatively fund properties. By trade, Shanah is a Holistic Health Advisor with a Master’s Degree of Nutrition who owns Adaptive Nourishment and is the co-owner of Cash Wives ExWives, which is geared towards keeping divorce from killing your finances.

16 Comments

  1. Greg Parker

    Good job. You are persistent. One of the BP podcasts I listened to had a guy on there talking about the swap to LLC loan calling issue. He said he and lots of investors he knows have done it a lot and he only had a bank call it in one time over the past 30 years. He just told the bank, “oh sorry, I will leave it in my name” and they were OK. But, according to his experience, the bank is totally fine if the payments are being made.

    • Shanah Bell

      That is good information to have, Greg. I have heard similar stories about the banks rarely calling the loan. It still concerns me a bit though. So I am trying to figure out which commercial mortgage lenders may be the best option because, from what I have gathered so far, they will put the property in the LLC name to begin with, which would resolve that issue. Have you had any experience with Commercial Mortgage Lenders?

      • Chris Ayers

        Local lenders like small banks and credit unions are your best bet – but it’s not without difficulty to find a good one. I had to call 20+ banks before I found one that would lend to an LLC with good rates and seasoning periods.

        Some only do 20 year amortizations with 5-10 year fixed loans though. Some do 30 year but they are rare.

  2. Hey Shanah,

    Fun read! I actually just spoke with Lima One Capital as I am looking for options to fund my first investment (I own my primary residence on FHA with little to no equity). They told me they want someone in my shoes to have $30K+ of cash and/or liquid assets. I’m wondering if they told you the same and if you (or anyone else) know — is that $30K standard across most hard money lenders?
    Look forward to reading more of your posts in the future.

    • Shanah Bell

      Hi Dallas!

      Thank you! I am glad that you enjoyed this part of our story. With regards to HML (Hard Money Lenders), I have found that there is no standard rule. They are all different and have different parameters. I have been working with Longhorn Investments and their parameters are that I have to have $15K in liquid assets. When I spoke with Lima One Capital a few months ago, I was told that I needed to have at least $10K in liquid assets. I think that some of them not only have different minimum’s but I think that part of it may also come down to how much they will loan you and what they will require you put down.

      But I am sure that there are much more seasoned investors who have had a lot of experience with HML and know what the rules are. Ultimately, it would be great to find a document (I love spreadsheets!) that had all of the HML’s with their fees, rates and areas that they service. If anybody knows of any such document, can you please post a link here?

  3. Pyrrha Rivers

    Shanah,
    I love your energy and admire your persistence. I’m going to share some of my path because I find some similarities and have experiences that may help.
    I too started investing after divorce. Did not remarry but got a HELOC on my home. I absolutely love having that HELOC because I use it like a big credit card. Have used it for down payments, to fill the gap for a cash purchase and to fund rehabs.
    Recently I had to quitclaim a property from my LLC to my name in order to get a cash out refinance. The process was very, very easy and inexpensive, but I find it a huge annoyance to have to take the property out of the LLC. I have a couple others I bought in my name, would love to put in an LLC but I’m afraid of the due on sale clause.I did a lot of research and didn’t find any other reasonable solution. Specialty lenders who lend to LLCs simply charge entirely too much and I’m not willing to pay too much because I work hard to keep my credit at superior level. I am now educating myself on Revocable trusts as a possibly more robust alternative than the LLC. I encourage you to look into that. Let me know what you think.

    • Shanah Bell

      Hi Pyrrha!

      Thank you for sharing a bit of how your journey went, as they definitely have some parallels. Just a side note, that Bryan and I have not married. We continue to remain domestic partners, even though we have 5 children between the two of us. We have chosen this path primarily because it is much cheaper for us to remain unmarried.
      So far, I have loved the HELOC also. I am working on the next phase of my plan. This entails using lines of credit from Fund and Grow, finding Hard Money Lenders and Commercial Mortgage Lenders. Since my HELOC is tied up in the first property currently, I am hoping to get a Commercial Mortgage on it so that I can pay back the HELOC and purchase another property. I am definitely open to your suggestions, as the creative financing part seems to be the hardest part of this investing game.
      As for removing the property out of your LLC and putting it into your name, that would concern me as well. Have you looked into Commercial Mortgages? I am currently looking into some of them that I found in another BP post (https://www.biggerpockets.com/forums/32/topics/480322-mortgage-lenders-for-llcs). I haven’t had the time to get very far on these yet, but plan to hit it hard next week.
      I have not heard of Revocable trusts, but am certainly interested in the idea! I will look into this option also. Thank you for bringing it to my attention!

  4. Daniel Kern

    Great Read Shanah and glad to hear things are going well now. Great opportunity for you to meet Mindy and Scott at the conference while networking. Im closing on a seller financed triplex this afternoon and am taking title in my LLC. The seller agreed to finance the property for two years and then I’ll refinance into a conventional loan…hopefully I won’t have any issues refinancing since Im purchasing in the LLC.
    Best of luck to you and your family.

  5. Tom Cyr

    Getting credit rolling is a difficult puzzle to solve. Wells Fargo will extend a small BLOC to an LLC. Frost Bank will create a large BLOC for an LLC based on personal guarantee by its members’ with collateral. I still have not cracked the code for Rich Dad’s credit lines with no personal guarantee. Can anyone here comment about the steps to go thru to qualify for this holy grail?

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