New Investor: Family Home Acquisition and Rental Strategy

[Price Peeler]

_Hello everyone. I am new to biggerpockets.com and looking to learn and make some investment decisions. There are a few strategies I have been researching, I would like to share my thoughts and receive feedback. I have been taking advantage of the blog posts here on the site, and I am through about the first 30 BP podcasts. I was having the hardest time watching them in order on the Youtube phone app, but I finally figured out that they are well organized in the iTunes podcast feed ("Quick Tip" I changed setting to streaming only so my phone didn't run out of memory). Its ok if you just sung “Quick Tip" in your head..!

-I am currently in the banking industry and I consider my Excel skill to be greater than intermediate, so I feel my skills are up to the task of analyzing possible acquisitions.

-I am also a big DIYer at home, I have completed many small home improvement projects… so I have some property rehab experience. (Fences; patios; hardwood floors; crown molding; landscaping; electric fixtures and outlet replacement, under sink piping/kitchen disposals)

-My wife and I are currently in a home purchased in 2010 with an FHA loan. It is appraised as a 2/2 and there is an additional room with two entrance/exit doors that could be a 3rd bedroom, might need to seal one of the doors off as a wall or put the doors back on. It connects the breakfast/backroom to the bedroom hallway (Not certain if there are qualifications on defining/listing a room as a bedroom, it has three closets including a cedar).

-We estimate based on improvements we have made and market activity that our home’s value has increased at least %50-%70 from purchase price.

_Plan:

-Like most people, I want to build a portfolio investments that includes long term rentals that produce extra/replacement income, I am also interested in flipping.

-I would like to acquire my Texas real estate license

-Keep current job

_Possible next steps (a or b):

a) Sell home for profit:

Pros

-Money to buy larger home to accommodate growing family

-Gain investment cash

Cons

-Missing out on future appreciation

-No low cost HELOC availability

-Loss of an income producing property & tax benifits

b) Refinance FHA loan to conventional; keep property as rental; open HELOC; keep a rental cash reserve fund from our current cash savings; utilize BP rental calculator:

-A podcast advised (please correct me with appropriate steps): Form trust, deed property to trust, place trust in LLC ownership (Be aware of any due on sale clause). Work with insurance company to gain appropriate coverage (Can you recommend a good post with instructions to follow and company I can use, do you recommend I use one of the self-serve legal sites instead of using an expensive legal firm).

-Use rent to pay reduced fixed mortgage and HELOC, use any additional net operating income (NOI) to pay down HELOC (unless there is a delayed HELOC repayment plan; then use money for short term investments such as flipping or acquiring more rentals, etc.).

-Self manage; screen tenets and capture rent using landlord website portal (any recommendations?).

Pro

-Cash out refi or acquire HELOC for new primary residence down payment funds and/or investment capital.

-Possible future appreciation

Cons

-Missing out on check from property sale.

_New Family home acquisition (couple of options, I’m sure there are more):

-SFR or "Hack" a multi family property. Must be a least a 3/2 for my family with garage preferred/required. Perhaps move out of our preferred neighborhood to get more for our money and by searching for a deal; then flip by moving after a year or two into our preferred location (or keep as a rental if we can afford to move back to our desired neighborhood without selling). Need to investigate the options, please feel free to share strategies you have implemented.

-Buy where I don't use all available cash from current home sale/HELOC funds so that I am still able to actively invest.

_I need to figure out my immediate course of action on my housing situation; then I need to decide my action plan for taking my next steps in investing. We planned on starting out with light rehab flips, mainly because that is the technique I am most comfortable with at the moment, but we are open to other opportunities. This business sounds like a lot of lead generation is required based on what I have read, is working with wholesalers the way to go until I figure out what it takes to find the “Deals”(or they find me)? Can anyone make the introduction to reputable Dallas wholesalers that are active on the forum. I'm not sure I will have the all-cash offer required on many of the deals though.

I would like to have a mix between some short term flipping of sorts and strategies similar to the following blog post: https://www.biggerpockets.com/renewsblog/2012/12/12/make-a-million-dollars/

I would also like to learn more about 50/50 partnership operating agreements and about the specific investment structure described in podcast 30 with Kenny Estes.

Before you say it, “Value cashflow over appreciation” when evaluating a deal.

Thank you for the guidance, I’m in this for the long term...

Price