Getting my Third Property? I’m stuck

[Josh Edelman]

I want to buy my next investment. Looking for advice on way forward. Here is the skinny: 

- I have one rental property (VA loan)

- took out a Heloc to buy my second property 

- I live in the second property (VA loan also)

- I've used up my VA loan limit

- I have $50k saved for a down payment 

- I live in Las Vegas and don’t mind investing out of state 

- Best advice for third property? 25% down conventional out of state? Move out to a primary residence on a third property? 

- goal is not to sell the current two - they cash flow well 

Thanks! 
 

[James Hamling]

Quote from @Josh Edelman:

Quote from @James Hamling:

Quote from @Josh Edelman:

Quote from @James Hamling:

Quote from @Josh Edelman:

I want to buy my next investment. Looking for advice on way forward. Here is the skinny: 

- I have one rental property (VA loan)

- took out a Heloc to buy my second property 

- I live in the second property (VA loan also)

- I've used up my VA loan limit

- I have $50k saved for a down payment 

- I live in Las Vegas and don’t mind investing out of state 

- Best advice for third property? 25% down conventional out of state? Move out to a primary residence on a third property? 

- goal is not to sell the current two - they cash flow well 

Thanks! 
 

Refi #1 into a conventional. Yes, rates are higher BUT given you have a strong equity position, that should help mitigate that rate a touch. And it unlocks VA for #3.

 Unfortunately I would be cash flow negative if I refinanced. Is that still your recommendation? I currently pay $1200/month. New mortgage would be $2300/mo. 

Is the $1,100 difference from wrapping the heloc in and new conventional rate? 

If you have that heloc with a balance, your not ready for the next one. You need to clear that acquisition $. 

 Sorry let me clarify:
The current mortgage is $1200
The heloc payment is $500
The new mortgage with a 6.5% conventional would probably be closer to $2300 

I'm not sure what would be better - wrap the heloc into the rate or just pay it off from the cash out refi. 

 Ok Josh, understand what I am advising from has a basis in 2 different foundation points. The first is market cycles, the second is investor psychology. 

I would say you need to pay-off that heloc, full-stop. Not interrelated to a purchase, just pay that off. Because think, that was your down payment on a property. You borrowed that down, so you must have that as priority #1 of paying for that down. A down is supposed to be cash in hand. 

I get what your thinking, but this is not the market cycle for that. Your looking at using maximum leverage, and this is NOT the time for maximum leverage, it is time for being DE-leveraged. 

And on the investor psychology side of things, you gotta keep in mind that down $, that's cash-in-hand. $ used to secure a property, and borrowing for it is "cheating". So, you need to feel a kind of anxiety associated with that, and a burning desire to get that paid and cleared ASAP. 

When one thinks like this, it helps align the mind to keep a focus on proper production of property. It put's you in a mindset to keep driving at delivering cash-flow, in general. 

We are in STAGFLATION tail-spin, with powers that be pressing for recession to prevent stagflation. Many bad things can result from such for the heavily leveraged person. My #2 money-maker in last tight economic cycle, was buying out failed investors. All of them had same story, the leveraged tight as a nats-azz, and then something happened, something they did not have a buffer to fall back upon, and next thing there deep in the red with no way to turn. Don't be that guy. 

Todays market is about VERY smart acquisition, with ample margins, contingency funds, contingency for contingency. 

I know your licking those chops at #3, but what's most important is to keep going vs pumping unit count to just loose it all, or any, right. 

The #'s are clear, you gotta take a step back, clear that borrowed down $. Now your way better set to convert mortgages when do AND have a contingency fund when/if need in the interim. 

Keep in mind, cash in hand is dyeing at about 8% right now (inflation). Paying off heloc removes that interest charge AND loss of $ via inflation. So if heloc is say 6%, that's a 14% saving your affecting. Because Real Estate moves with inflation, right, so $ in real estate is at net 0 to inflation. That's 0 vs -8. So paying off heloc should be viewed as a 14% ROI. That's smart $, is it not.

So take it in smart steps. Stop thinking about #3, think about stabilizing what you got, to be best set to jump on #3.