A "what-would-you-do" scenario.

[Jason H.]

Hey BP! A newbie to the forums here and the REI world. Looking forward to learning a great deal from the community...which brings me to my first "what-would-you-do" topic. Would be interested in hearing what you would do in the big picture given all of the following circumstances:

1. Have a personal residence that is rented out to a tenant who paid an entire year up front and will stay longer. The house is on a 30 year fixed conventional at 3.75 with less than a year into the mortgage. What do to with that chunk of change? Just leave it to pay off mortgage each month? Would you and should you somehow use that cash to pay down principal first and use your own salary to pay monthly mortgage payment? Would you create an LLC for this property now that it's rented?
2. Applying for a HELOC: with 20% equity in the residence and considering taking out a line of credit to fund a down payment for an investment property in Chicago, Austin, or Pittsburgh.
3. As a remote investor, you wouldn't be able to travel to those places, but are still interested in those other markets either because you've lived there before or have close contacts on the ground.  What would you invest in turnkey or trust a real estate agent/investor that also has a property management company that does rehabs? 
4. What to do with 1099 income (don't need to it for living expenses) given that I am looking to invest in a property? Would you drop that income into a SDIRA and then use it towards a down payment for a property?

Looking forward to your responses!

[Thomas S.]

1. Never collect rent in advance. That money remains as the tenants money until due each month and can not be legally touched by you till the first of each month. You must put it in a separate bank account and draw out the rental amount due each month. You should also be paying the tenant the interest earned on the money in the account.

Do not pay down the principal on a rental property, the value of opportunity money is far higher than any prevailing interest rates. Paying down the principal will actually reduce your monthly cash flow. 

2. With only 20% equity in your property you will not get a HELOC. Banks will only provide a HELOC, usually, up to 70% of the property value.

3. If there are no properties in your immediate area I guess remote investing is your only option.

If you do never trust anyone. You must stay in contact and on top of your investments at all times. At the very least you are fully responsible to manage the PM. If you do not you will be sorry.