Just starting buy &amp; hold - planning for growth

OP

Investor · La Crosse, WI · Member since 2016 · 21 posts · 7 votes

10y

Thanks for the reply... we have talked about flipping properties as well in the future, and actually to start we were going to look for properties to flip first. Complete a couple of those, and take the profits to roll over into buy and hold properties.

The reason why we changed our strategy to buy & hold first was due to the risk... if we end up trying to flip a property and fail, our cash flow could be gone and we would be stopped in our tracks for quite some time. If we fail on a rental, it hurts, but having a negative cash-flow of a couple hundred dollars a month wouldn't stop us as we could cover that as we both work full time as well.

We live in SE Wisconsin, and in our market 50%+ of the properties are current rentals, so it's dependent on what are of town we find a potential deal, because there is a definitive line of areas for rentals and areas for owner-occupied.

The biggest part now is finding that first deal, because with strict criteria like this I think it might take a little longer, but in the long run would be worth it to be able to have a business model that can expand.

Thanks again for the idea and feedback!

Cole Swartz

Beloit, WI · Member since 2015 · 56 posts · 16 votes

10y

Sounds like a solid plan. Know of several folks who have been very successful in Southern Wisconsin utilizing a similar strategy of buy below market, rehab, rent, refi, and repeat. Only suggestion with that strategy would be to make sure you are spot on with your ARVs as you don't want to get caught off guard with an unanticipated appraisal value, especially with your next deal being dependent on the cash from that refi.

Also as Tamara points out, if you are buying using the 70% rule, that should also give you a viable alternative exit strategy of flipping if you wish to pursue it.

OP

Investor · La Crosse, WI · Member since 2016 · 21 posts · 7 votes

10y

Thanks for the feedback @Cole Swartz! I totally agree that estimating the ARV properly is one of the most key components, which is why my first call was to a very established, investor friendly, real estate agent that has been in the business locally for almost 20 years. She understands the numbers investors are looking for vs owner occupants, and has already been a huge help to us.

Thanks for verifying the strategy is sound!

Cole Swartz

Beloit, WI · Member since 2015 · 56 posts · 16 votes

10y

No problem.

And if you already have a true investor friendly agent on your team, then you are already ahead of the game. As many folks here can attest to, they are certainly not easy to find.

Kevin FoxPro Member

Real Estate Agent · San Diego, CA · Member since 2014 · 1k+ posts · 635 votes

10y

Hey @Jason Stratman

Seems like a solid plan to start with. Keep in mind, though, that REI is a fluid process and you'll find that you're almost always altering your strategy, one way or another, as you go along.

So, as long as you aren't completely tied to the plan through and through; you should be more than OK!

OP

Investor · La Crosse, WI · Member since 2016 · 21 posts · 7 votes

10y

Thanks @Kevin Fox!

Since we're starting out we figured this strategy would be best to initially grow the business, albeit slowly to not over-extend ourselves. Once we have a couple properties under our belt, we will certainly be fluid, move with the market, and definitely feel more confident in our process.

Kevin FoxPro Member

Real Estate Agent · San Diego, CA · Member since 2014 · 1k+ posts · 635 votes

10y

Originally posted by @Jason Stratman:

Thanks @Kevin Fox!

Since we're starting out we figured this strategy would be best to initially grow the business, albeit slowly to not over-extend ourselves. Once we have a couple properties under our belt, we will certainly be fluid, move with the market, and definitely feel more confident in our process.

Hey Jason. My pleasure!

As for your plan to become more fluid once you've gained some experience, that's certainly the right idea.

Keep us updated on your progress and don't forget to come back to share your success stories!

Scott Schultz

Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes

10y

The concept of you plan is solid, I would consider a flip, to bolster the funds for the next Rental, thats what I do, flip 1, buy 2 rentals (if the return is enough) , flip another, and so on, just be aware of how flipping may affect your tax return. Im closing Flip #15 Monday, and the profit will buy and just about rehab 2 rentals (free and clear), that will bring a combined gross rent of $1400/mo. there are several parts to making it all work. one is Buy a Great Deal, equity and cash flow, not one or the other, two, be prepared for being broke, a ton of money flows out all at once, but it trickles back ever so slowly, especially with leverage, three, be prepared for a vacancy, or an eviction, know how you will pay your mortgage and holding costs if you have a hold out non payer, or cant find a decent tenant, and if the numbers allow, Hire a manager right away, I want to only do the stuff i want to do, and i hire the rest out. And Four, Keep your Eye on the End Game, the reason your doing this, for me its making money while i sleep, or sip a drink with an umbrella on a sunny beach December to April. Be aggressive on you pay down, the sooner you have a free and clear asset, the sooner you can have a Line of credit to be a cash buyer for more, Having access to cash opens a whole new world of opportunities, with more equity and better cashflow. Good Luck!!!

OP

Investor · La Crosse, WI · Member since 2016 · 21 posts · 7 votes

10y

Thanks @Scott Schultz! Great info and outlook.

One question... you mention a Line of Credit once you have a free and clear asset. I was told by two loan officers at different banks that lines of credit are not allowed on investment property. Have you found a way around that, or do I have the wrong information? Is it lender specific maybe?

Scott Schultz

Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes

10y

@Jason Stratman Your at the wrong Officers Desk, Set up a Meeting with the Commercial Lender at the local Community Banks, I have LOC's on 2 of my rentals. Stay out of the Mortgage lenders office an the Big Banks, they dont know how to do this stuff.

Go in Prepared, have 3 years of your taxes, a prior history of what you have done, and a plan on what you want to do, the better you present yourself the better they will receive you and be more likely to lend to you

OP

Investor · La Crosse, WI · Member since 2016 · 21 posts · 7 votes

10y

@Scott Schultz Thanks for the suggestion! The banks I worked with for pre-approval were local credit unions that offer portfolio loans when that time comes around. They did say at that point they would have to get me in touch with their Commercial Lenders, and when I get to that point I will have built a relationship with them on the conventional loans. At least that is my plan.

Scott Schultz

Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes

10y

I suggest getting with the Commercial Lender right away, depending on your situation, they may be able to provide a Loan Commitment instead of a pre approval, it is much stronger, and puts you in a better position, still not as good as cash, but better than a pre-approval. the flexibility is by far better, and the little extra you pay in interest is well worth it for the ease of doing business

Alexander Lang

Rental Property Investor · Savage, MN · Member since 2016 · 202 posts · 61 votes

10y

Thanks for the great tip @Scott Schultz!

I have run into this as well @Jason Stratman, and it can really bog down the mood, but the tip is to keep on searching for those banks that don't have the cookie-cutter loan underwriters. Nice posting!