How to leverage my single family home to get into real estate inv

[Dan Smith]

Hi All,

I have always wanted to get into real estate investing but I feel i made a BIG mistake when i purchased my first home!

I have a home (my first purchase) in a small rural town in southern new jersey that I purchased 5 years ago for $134,000. My interest rate is %3.14 on my mortgage - (I know its really low - I lucked out big time! ) 

In the last five years a very small amount has gone towards my principal and most has gone to interest so there is hardly any equity in the house yet to use towards the purchase of another property. 

But I really want to know how could I leverage my asset (my 1 family house - 3 bedroom , 1 bath with deck and fenced in back yard) to purchase a fourplex investment property?

I also want to know if it will be easier to purchase a fourplex as a live in owner or is it not necessary since i am not a first time home buyer anymore? 

[Mark J.]

You may be over-looking the biggest asset you have-- YOU! There are many other funding opportunities available other than tapping into your home's equity. Matter of fact, I wouldn't even consider that at this point.

I've slowly built up my buy-and-hold properties and flips using very little of my own money and instead using the bank's money. A couple of suggestions:

1) Read the ba-jillon posts on creative funding sources and Brandon Turner's book on investing with low or no money down.

2) If you have good credit and a low debt-to-income ratio, I'd strongly recommend applying for a Personal Line of Credit (PLOC). This is not a Home Equity Line of Credit (HELOC), a PLOC is essentially an open line of credit that you can use to purchase/rehab properties. That's the core of my strategy. I have two PLOCs. I use one to buy the property (typically foreclosures) and the other to renovate. After rehab is complete and six months has elapsed, I'll do a cash-out refi and then pay off the PLOCs. If I've done the purchase and rehab right, I should get all (or nearly all) the money I've invested back. At that point, I now own a property that I've paid almost nothing out of pocket for and I'll be earning a steady net cash flow for years to come. It's the BRRRR strategy using a PLOC. On my last BRRRR, I purchased a foreclosure for $65K, did a $22K renovation for a total investment of $87K. The house appraised for $110K and, at a 75% cash-out refi, I got 75% of $110K or $82,500 back. I paid off the PLOCs, but was short $4,500-- so that came out of my pocket. So it wasn't a perfect BRRRR, but it was close. BUT, for my $4,500, I created $23,000 worth of equity and earn about $6,000 per year in net cash flow. Not a bad return for $4,500. Can't do that in the stock market!

Good luck and happy investing!