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Updated almost 3 years ago, 02/22/2022
I have 450k in home equity. Needing advice.
Hey guys, I am 23 years old, engaged to my fiancé who is also 23. We recently bought a home for 250k and it was appraised for little over 700k. We have a detached 2 bedroom fully finshed guest Casita we are planning to AirBnB, but we have all this equity (450k) and no idea what to do with it. We obviously know we MUST invest to capitalise on it. We fear that we have an amazing opertunity that will be wasted because of current inflation and uncertainty in the market. We could be wrong. We do not have mentors. We have been thinking about an 8-plex commercial building. Please help. Advice would be so greatly appreciated. Also, I sell solar as a 10-99 contractor and on track to make pre-tax 100-150k/year but it's looking to be on track to see 200k. Less than a full year so far.
A life time of thank yous'
Sincerely,
Colton & Kaitlyn Lucas
Hey Colton,
I just want to start by saying congratulations! You are young and you took a leap which landed you in a fantastic property, it sounds like. I understand the feeling of wanting to optimize all of your investment capital and yet I think it is important to move slowly to make sure it goes to a good place.
First thing, is I recommend seeing if you can be preapproved for a loan. Lenders usually like to see two years of income at a job, but you can also usually get a P&L loan based on this years earning but the interest rate will be high. Then I suggest getting the casita up on airbnb, to maximize what you already have before getting something new.
Then based on what you are preapproved for or if you need to wait to qualify, you can pick a market.
@Colton Lucas not that it's any of my business, but how on earth did you purchase a property that already has 450k of equity? Before dumping your capital into another property, I advise that you educate yourself on real estate investing to a certain degree, otherwise, you're going to have shady folks reaching out trying to take advantage of the situation. Your question is also entirely dependent on your goals and how active or passive you want to be with your investments. If you have no desire to be a landlord, then maybe network with a RE syndication institution and evaluate your return via that route. Buying a multi-unit property is going to take time and energy and you will need to treat the purchase like a business. However, if you do desire to grow your investment portfolio, I would surround yourself with investors who have done it themselves who can be a guide to help you succeed. Hope this makes sense and helps!
Hi @Colton Lucas 450K in equity at that age is unbelievable, congratulations to you guys! I suggest listening to the Bigger Pockets Real Estate Podcast episode 570. I just listened to this last night and David Greene answers several questions throughout the episode, one being what to do when you have a massive amount of equity in your house and the best way to analyze your situation and then capitalize on it. I would take a listen, see what he has to say and take what you can to apply it to your situation. Good luck!
Congrats @Colton Lucas, I too am wondering how you recently purchased a home with so much equity. For solar panels, do you find that adds value to a home from an appraisal perspective?
Quote from @Michael Dumler:
@Colton Lucas not that it's any of my business, but how on earth did you purchase a property that already has 450k of equity? Before dumping your capital into another property, I advise that you educate yourself on real estate investing to a certain degree, otherwise, you're going to have shady folks reaching out trying to take advantage of the situation. Your question is also entirely dependent on your goals and how active or passive you want to be with your investments. If you have no desire to be a landlord, then maybe network with a RE syndication institution and evaluate your return via that route. Buying a multi-unit property is going to take time and energy and you will need to treat the purchase like a business. However, if you do desire to grow your investment portfolio, I would surround yourself with investors who have done it themselves who can be a guide to help you succeed. Hope this makes sense and helps!
We bought the house from my fiancé's Auntie who just inherited millions. So she rebuilt this home and sold it to us for 250k. Then it was appraised little over 700k. We have definitely been researching, but you 100% correct, we absolutely need to surround ourselves with others who have been successful. Thank you.
Quote from @Nate Ramos:
Hi @Colton Lucas 450K in equity at that age is unbelievable, congratulations to you guys! I suggest listening to the Bigger Pockets Real Estate Podcast episode 570. I just listened to this last night and David Greene answers several questions throughout the episode, one being what to do when you have a massive amount of equity in your house and the best way to analyze your situation and then capitalize on it. I would take a listen, see what he has to say and take what you can to apply it to your situation. Good luck!
Quote from @Ben Scott:
Congrats @Colton Lucas, I too am wondering how you recently purchased a home with so much equity. For solar panels, do you find that adds value to a home from an appraisal perspective?
We bought it from my Fiancé's Auntie who just inherited millions. She rebuilt this home and sold it to us for 250k. It was then appraised for little over 700k. Also, Solar absolutely adds value to homes. Unless it's a leased system. Financed or purchased typically adds a 3% equity value depending on size of the system.
Quote from @Terri Wyzkoski:
Quote from @Ben Scott:
Congrats @Colton Lucas, I too am wondering how you recently purchased a home with so much equity. For solar panels, do you find that adds value to a home from an appraisal perspective?
You’re wise to seek advice, and you’re in the right place to educate yourself. As others have indicated above, take your time, absorb as much knowledge as you can and take on a mentor.
That said, as a 29-year veteran CRE lender, now CRE mortgage broker/advisor, I'm happy to have a phone conversation with you, which is a much more efficient approach to learning the timing of your home purchase and discussing your options.
Feel free to reach out if you like. I mentor a number of investors.
Thank you. I'll reach out and give you my Email. Then my wife and I can talk via phone. We appreciate that.
Thank you all for your valuable time to respond to this. The advice is very informative, kind, and helpful. Again, a lifetime of Thank Yous'.
Warmest Regards,
Colton & Kaitlyn Lucas
@Colton Lucas my advice: 1) first, focus on turning your casita into an overnight rental 2) Educate yourself for the next 3-6 months 3) if you like the overnight rental biz consider using the equity to expand that business. After going live with your casita, you will know in 3-6 months if that is a business that you want to expand and you will have the personal experience at that point to do so. Good luck!
Quote from @Colton Lucas:
Hey guys, I am 23 years old, engaged to my fiancé who is also 23. We recently bought a home for 250k and it was appraised for little over 700k. We have a detached 2 bedroom fully finshed guest Casita we are planning to AirBnB, but we have all this equity (450k) and no idea what to do with it. We obviously know we MUST invest to capitalise on it. We fear that we have an amazing opertunity that will be wasted because of current inflation and uncertainty in the market. We could be wrong. We do not have mentors. We have been thinking about an 8-plex commercial building. Please help. Advice would be so greatly appreciated. Also, I sell solar as a 10-99 contractor and on track to make pre-tax 100-150k/year but it's looking to be on track to see 200k. Less than a full year so far.
A life time of thank yous'
Sincerely,
Colton & Kaitlyn Lucas
Congrats on finding success early in the RE game!
2 things here:
1. Opportunity cost is real. By not capitalizing on opportunity, you are indirectly "losing money"
2. In regard to #1, you also don't want to rush into a bad decision for the sake of "fomo"
Its a delicate balance and i've personally felt exactly what you are feeling.
Hi Colton, congrats on the equity! You may already be listening to the BP podcasts, but if not, that’s a great place to start. Install the phone app and you can scroll by title to find various episodes for areas of real estate that may interest you. I noticed you may be in AZ. BP podcast 568 has an interesting take on the national housing market and does mention AZ specifically. The podcast is one person’s perspective, keep that in mind. However, she does see cautionary signs in AZ’s housing markets.
You mentioned potentially buying an 8 plex. The recent Brandon Turner multi family book may be worth reading for you if you have an interest in multi family. There’s quite a lot of real world useful knowledge in there. Some of the highlights include, explaining the financing types available (more than 4 units is commercial loan for example), which types of financing factor in your W2 and personal debt, accurately projecting cash flow for a property (very important), appreciation vs. cash flow and how these two differ between areas and property class types, i.e. Indiana vs. California, “A class property” “B class property” Congrats again on the equity. Educate yourself as much as possible and Good luck!
@Colton Lucas I admire your financial savvy at such a young age. Your thinking is on the right track. You have a lot of equity that is trapped in your primary home that isn't doing anything for you. Your available equity gives you some options. A medium sized multi family would be a good one. It really comes down to a personal choice of whether you want multiple SFR's or fewer MF.
Quote from @Mike D'Arrigo:
@Colton Lucas I admire your financial savvy at such a young age. Your thinking is on the right track. You have a lot of equity that is trapped in your primary home that isn't doing anything for you. Your available equity gives you some options. A medium sized multi family would be a good one. It really comes down to a personal choice of whether you want multiple SFR's or fewer MF.
Thank you. I don't know about savvy just yet. However we are constantly trying to learn new things. We want to make real-estate our thing. With an opportunity such as this, we are looking at even developing a company. I fear though, in these times, we are most likely to fail without a mentor and all that we have will be wasted. A risk we must take. We absolutely must take this risk once we educate ourselves. However at some point we must take action. In our area, we are seeing tremendous population growth and new apartments getting built everywhere. Rent is high even for low income appartments. SFR have sky rocketed in price. (Concerning, we may be at a peek in the market) people are moving here from everywhere like crazy. There is also tons of employment options, especially in building, construction as well as heating and cooling. In my area, tourism is also a major factor with upwards of 4 million tourist a year. AirBnB in this are has been exploding so much, locals are going to the bulletin boards and complaining to the city. My area contains Flagstaff which is college town. Sedona which is tourist central with beautiful homes being turned into AirBnBs. Cottonwood, Camp Verde is where most of the people who work live. Each with a population of roughly 11,200 people according to the 2010 census. We are seeing building being built all the time. Prescott is a larger city with the same growth.
Hi Colton, congratulations! That is an awesome position to be in and could really be the golden goose for your financial future.
First thing I'd recommend is to be patient. You have a great opportunity in the casita to get your feet wet in investing. This market is hot, so no need to feel the need to jump in right away. Education is the best investment you can make, and it sounds like you're off to a great start here on BP.
On accessing your equity, a couple things may give you some trouble. In many cases you'll need 6 months of seasoning to access that equity (at a reasonable rate at least). Also, if you're only 1 year into that 1099 work, underwriters for more traditional financing will want to see 2 years of income/self-employment history.
My wife and I have are very fortunate to have a nice chunk of equity at a young age on our property. We refinanced into a very specialized 1st position LOC that's tied to a zero balance sweep checking account. That allows us to sit idle deposits/funds on our balance saving us interest, while retaining access to 80% of our equity. When opportunities arise, we simply write a check from our line and finance that ourselves. We plan to use that 30 year access to equity to build additional wealth, and snowball through investments.
I'm excited to follow along with you on your journey here, cheers!
Quote from @Justin Phillips:
Hi Colton, congratulations! That is an awesome position to be in and could really be the golden goose for your financial future.
First thing I'd recommend is to be patient. You have a great opportunity in the casita to get your feet wet in investing. This market is hot, so no need to feel the need to jump in right away. Education is the best investment you can make, and it sounds like you're off to a great start here on BP.
On accessing your equity, a couple things may give you some trouble. In many cases you'll need 6 months of seasoning to access that equity (at a reasonable rate at least). Also, if you're only 1 year into that 1099 work, underwriters for more traditional financing will want to see 2 years of income/self-employment history.
My wife and I have are very fortunate to have a nice chunk of equity at a young age on our property. We refinanced into a very specialized 1st position LOC that's tied to a zero balance sweep checking account. That allows us to sit idle deposits/funds on our balance saving us interest, while retaining access to 80% of our equity. When opportunities arise, we simply write a check from our line and finance that ourselves. We plan to use that 30 year access to equity to build additional wealth, and snowball through investments.
I'm excited to follow along with you on your journey here, cheers!
Thank you. That's very reassuring to read. This was indeed helpful. We are excited to start the AirBnB in the Casita at the start of next month when the furniture arrives.
Quote from @Michael Dumler:
@Colton Lucas not that it's any of my business, but how on earth did you purchase a property that already has 450k of equity? Before dumping your capital into another property, I advise that you educate yourself on real estate investing to a certain degree, otherwise, you're going to have shady folks reaching out trying to take advantage of the situation. Your question is also entirely dependent on your goals and how active or passive you want to be with your investments. If you have no desire to be a landlord, then maybe network with a RE syndication institution and evaluate your return via that route. Buying a multi-unit property is going to take time and energy and you will need to treat the purchase like a business. However, if you do desire to grow your investment portfolio, I would surround yourself with investors who have done it themselves who can be a guide to help you succeed. Hope this makes sense and helps!
Right on. Don't get lured by the easy money right now. Especially if you have minimal experience. Wall St is buying up properties for cash and inflating the prices right now. I would never risk leveraging my personal home. I've been investing in properties for well over 20 years and have never seen what's going down right now
I sold my last spec last part of July and sold all land holdings I was going to put specs on (with handsome profits). I am doing only customer builds now. I am getting ready to add addendums to contracts as a result of price increases. If you ever want to discuss in depth, I'd be more than happy to talk.
Quote from @Paul Sofia:
Quote from @Michael Dumler:
@Colton Lucas not that it's any of my business, but how on earth did you purchase a property that already has 450k of equity? Before dumping your capital into another property, I advise that you educate yourself on real estate investing to a certain degree, otherwise, you're going to have shady folks reaching out trying to take advantage of the situation. Your question is also entirely dependent on your goals and how active or passive you want to be with your investments. If you have no desire to be a landlord, then maybe network with a RE syndication institution and evaluate your return via that route. Buying a multi-unit property is going to take time and energy and you will need to treat the purchase like a business. However, if you do desire to grow your investment portfolio, I would surround yourself with investors who have done it themselves who can be a guide to help you succeed. Hope this makes sense and helps!
Right on. Don't get lured by the easy money right now. Especially if you have minimal experience. Wall St is buying up properties for cash and inflating the prices right now. I would never risk leveraging my personal home. I've been investing in properties for well over 20 years and have never seen what's going down right now
I sold my last spec last part of July and sold all land holdings I was going to put specs on (with handsome profits). I am doing only customer builds now. I am getting ready to add addendums to contracts as a result of price increases. If you ever want to discuss in depth, I'd be more than happy to talk.
Thank you. That gives us an eye opener. This was very helpful indeed. We will gladly refer to you with brief questions. We appreciate your valuable time.
@Colton Lucas one thing you can do is look for a HELOC to be able to tap that equity at your convenience. Some banks and credit unions offer a fixed rate period so you have a predictable lock in. Then you aren't under the gun to purchase another property before a rate lock expires and you could use the equity for a down payment, all cash offer, or to temporarily finance a next property.
I’ve done similar things with my own home equity.
Quote from @Mike Gordon:
@Colton Lucas one thing you can do is look for a HELOC to be able to tap that equity at your convenience. Some banks and credit unions offer a fixed rate period so you have a predictable lock in. Then you aren't under the gun to purchase another property before a rate lock expires and you could use the equity for a down payment, all cash offer, or to temporarily finance a next property.
I’ve done similar things with my own home equity.
Thank you. Did it ever end well for you?
Quote from @Colton Lucas:
Quote from @Paul Sofia:
Quote from @Michael Dumler:
@Colton Lucas not that it's any of my business, but how on earth did you purchase a property that already has 450k of equity? Before dumping your capital into another property, I advise that you educate yourself on real estate investing to a certain degree, otherwise, you're going to have shady folks reaching out trying to take advantage of the situation. Your question is also entirely dependent on your goals and how active or passive you want to be with your investments. If you have no desire to be a landlord, then maybe network with a RE syndication institution and evaluate your return via that route. Buying a multi-unit property is going to take time and energy and you will need to treat the purchase like a business. However, if you do desire to grow your investment portfolio, I would surround yourself with investors who have done it themselves who can be a guide to help you succeed. Hope this makes sense and helps!
Right on. Don't get lured by the easy money right now. Especially if you have minimal experience. Wall St is buying up properties for cash and inflating the prices right now. I would never risk leveraging my personal home. I've been investing in properties for well over 20 years and have never seen what's going down right now
I sold my last spec last part of July and sold all land holdings I was going to put specs on (with handsome profits). I am doing only customer builds now. I am getting ready to add addendums to contracts as a result of price increases. If you ever want to discuss in depth, I'd be more than happy to talk.
Thank you. That gives us an eye opener. This was very helpful indeed. We will gladly refer to you with brief questions. We appreciate your valuable time.
My pleasure