Which way to go?

Question

Hello everyone,  I am looking to jump into the real estate game and would like some guidance.  I am a 24yo that works full time as fireman and just recently got married.   When I married, I moved in with my wife and rented my house out.  After seeing $250 of passive income a month I have decided that I want to continue with more properties.  I have about 70k of equity in the rented home and I want to use it to add to my.  I would ideally like to own multiple cash flowing rental properties.  My question is how do I best utilize my equity?  Do I buy and flip a couple houses to generate cash for rental properties?  Do I use my equity to buy several rentals right out of the gate?  I am in Birmingham Alabama, so if anyone knows of any investor friendly lenders feel free to share.  Thank you for your time!

Jeff McCaskey · Answer

@Josh Martin

Hey Josh, welcome to BP and to REI!!!

I read the whole deal here and I would say to listen to the "pro" members specifically Bob E. and Cal C. with what they had to say. I would recommend to "consider" what the other "pro" members had to say in your post here but I would personally side more with the two I mentioned by name.

You are new to the game so my major piece of advice is to make sure you know what you are doing when you make a purchase, that you can handle it financially and skill wise as well. Just take your time and "know" that you are making  a good decision. Post the deal here and make sure based on others input if need be. Just make sure it's right for you and your wife.

That being said, being new and that you should enter slowly, I got from what you had to say that you would like to purchase as many units as you feel like as long as you can repeat the same results with each property. If you want the ease of using the HELOC money and want to replicate then you should follow Bob and Cal. You can use the equity, find a great deal, do the rehab, refinance, and if you had a great deal you will get all your cash back and probably some extra, effectively making money in the process.

You can use that extra profit to either pay your mortgage down on your own house or add to your investing fund to do more deals. If you just "buy with cash" and wait, it will be a very slow process and I don't get the feeling you want to wait years between purchases.

You are in a very good position for a young guy as far as money is concerned and you have a lot of opportunity in front of you if you handle it correctly, and that is really cool!!!!

If you need any advice just post it up and you will have plenty of help.

Hope this is insightful!

Jeff

Bob E. · Answer

@Josh Martin  Buying turnkey you will pay a premium.  If you have the bandwidth buy something that needs works and do as much work as you can yourself, hire out the skilled trades.  You will save a lot of money on the purchase and your return will be correspondingly higher.

Cal C. · Answer

I think taking some equity out of your house and investing in more properties is an excellent idea, but there are several things you need to think about.

1) do you have any debt besides you and your wife's mortgages?  Or do you have a big loan on a car/truck?

2) When you say $250 in passive income, does that include set asides for vacancies and capex?

3) When you start buying make sure you have significant reserves or at least access to significant reserves.

4) Don't be in any great hurry.  If you can buy 20 properties in the next ten years and you buy them at a great price (relative to rental income) in a good neighborhood you are probably changing your family tree.

5) Make dang sure you are able to handle the late night toilet issue phone calls or harassing a tenant for rent.  Also make sure your wife is on board.

Zachary Phelan · Answer

Hey @Josh Martin Welcome to BP!

Turnkey properties is the play here in the BHM market. Educate yourself on what they consist of. I wholesale properties to all the different turnkey companies that are local here. I have been finding a ton of guys just like you who seem to want to do the work them selves and hold on to the property as a rental.

You actually responded to one of my CL adds, saying "Interested in the house.  The ad was fairly vague.  Can you email me some more details?" Just give me a call Josh!!

Jarrod Cook · Answer

Hey Josh,

We are a full service Property Management Company,  Real Estate Brokerage and Turn-Key Provider. We purchase 15-20  properties a month to flip and lease. We then either hold, or sell as income producing turn-keys.

We're in the business that it seems you're trying to break into... I'd be more than happy to help you get your portfolio started - If I were you, I'd use your equity to purchase 2 properties to flip and hold. Once they begin cash flowing you can decide on your next move.

Let me know how I can help. I have a large portfolio of Turn-Keys that are already producing income that I can show you, or I can help you find the perfect project home.

Good Luck!

jc

Chad Lopes · Answer

hey Josh, try cbs bank. Ask for Paul. Great guy.

W. Paul Huckeba

City President

CB&S Bank

1301 Doug Baker Blvd.

Birmingham, AL 35242

Office: (205) 408-5562

Cell: (205) 542-5276

Fax: (205) 408-7095

paul.huckeba@cbsbank.net

www.cbsbank.com

Fred Ramos · Answer

@Josh Martin   Welcome and best of luck.

My 2 cents:

1. make sure you have excellent credit (740+).

2. make sure your debt to income ratio will allow the carry of another mortgage without being tapped out (shoot for 42% or preferably less, this will include the added mortgage debt).

3. Providing you have less than four (4) mortgages or less, you will need 20% of the purchase price to put down (Most major commercial banks (BOA, Chase Etc..) will do mortgages 1-4 at 20% down, 25%+ for mortgages 5-10(not typically done by major commercial banks but can be found with investor friendly banks, check your local hard money lenders to see who they deal with since most HM lenders will not lend to you unless you get pre-approved to move the debt to a conventional loan after a pre-determined amount of time)). Pull enough of the equity of your existing rental to purchase multiple properties with cash flow. Keep in mind that you, like most people will probably only qualify for one rental unit at a time (unless you do a 2-4 family property). Why? because each property should bring you income. with every property you buy, your income will increase thus again lowering your debt to income ratio. with that, buy a property and rent it out. get a month or two of rents and repeat.

Good Luck!

Josh Martin · Answer

We have one small car loan between the two of us. She is completely on board with this as well. The $250 we bring in from the current rental gross income and not after putting money back for expenses. How ever we have a decent savings that we will use if something were to come up.  I guess I am curious as how exactly I should best use my equity?  After doing some research, turn key rental houses that are rented section 8 and not in the best neighborhoods seems like the easiest thing to get into. How ever, I am not sure I am ready to deal with that class of people yet.

Lane Kawaoka · Answer

Russ Helms

Cashflow controls the   mortgage, the mortgage controls the property, and the property appreciation   and Cashflow.

Russ Helms

Investors focus on cash-flow   and net worth, not interest rate and debt.

Kyle Gibson · Answer

Use equity, leverage it and buy more houses and get profit from that.