ready to start and seeking advice how to best use my equity

[Wil Orozco]

I've been doing the podcasts, webinars, book reading, meet ups etc. since last April and I'm itching to get started and I just wanted to get some advice on whether my plan sounds good or if there may be a better way to go. I'll start with what I currently have going on. I live in Pasadena Ca (just outside of Los Angeles) In Pasadena I own a duplex which I live in one unit and rent out the other, I also own the sfh next door that is rented out. I took out a $250k HELOC on the duplex. I currently have lent a local flipper $180k of that while I was getting ready to get my own thing going. I took out the HELOC because I wanted to use it to brrrr in the midwest. I also have about $300k in equity in the sfh. Buy and hold for cash flow is my main objective.

My plans are this: I would use the HELOC for brrrring in the midwest. I was also thinking that I would do a cash out refi on the sfh of $200k and I would use $100k to purchase out of state multi family units (or even open to sfh) and the other $100k to turn the sfh garage into an ADU if the tenants don't renew in September. If they do renew, then I would use that $100k for midwest investments also.

  After getting some properties out of state and having positive cash flow, I also have my parents paid off house that's worth around $600k right now. It will be put in my and my sisters name in the next couple of years and I will talk to her about doing a cash out refi on that house so we can together purchase out of state also.

These are my initial plans and am looking for advise on whether they sound good or whether there are some other ideas that I may not be thinking of that may work better.

  Any advise is greatly appreciated     

[Sebastian Marroquin]

Sounds like you are making great moves. 

I am actually doing similar things. 

We own 2 properties in Azusa and Claremont, CA. I lived in Pasadena over 30 years and know the area really well! 

The question and dilemma will be about having a team out of state. I will be working on that soon, but not there yet. Having a good team you can trust will make the difference. 

The other item is about leverage. 

When you buy out of state, while a lot cheaper, the down payment will have to be 20% or more since you don’t like there. 

Even at $200k purchase price : that will be $40k plus closing costs (let’s say $50k) plus renovations. Can work of course. 

My train of thought and why we are buying out here is because we are able to go from primary home to primary phone: with 5% down payment. The Claremont home : we put down 5% on $550k and renovated the home with about $100k : 

The home is worth about $750k after only 2 months of Reno. And now we can refinance and pull a portion of the investment out if we want to. 
We will convert the garage to an ADU also in the next 4 to 6 months and will rent it out for $1800 per month, bringing our mortgage down from $2800 to $1k. And our value will go up to about $850k to $900k!

If you are willing to move: buy a home in San Gabriel valley and put down 5% on say… $800k : that’s only $40k or $50k with closing costs. Then convert the garage and move on to the next one when you are ready! 

I would also put an ADU on the SFR you have already and you can probably put 2 ADUs in the duplex (we have for clients that owned 3 units in Pasadena in the past).

Your duplex will gain about $3600 to $4000 per month more with a $200k investment (with the ADUs) : you can’t do those numbers anywhere else. The value on the duplex will climb to about $1.5 or higher depending on the location and condition. 

Then you can refi. And cash out to keep going. Once you are capped out here bc of debt to income or other reasons. Then go out of the state and BRRR.

Our first property is condo in Azusa and we have $200k sitting in equity and only making about $300 per month on it…. So we will wait this and next year since we can avoid paying capital gains for the next 3 years on it: and will be paying attention to the market (I'm a Realtor) : so we could cash out when we sell about $250k and will buy a SFR and put an ADU on it for a net cash flow of about $1k per month and the home will be worth about $1 million after renovation and ADU conversion (will be looking for a fixer in the $550k to $650K range).

Let me know if you want to talk: I’m local