Selling Our Family Home To Expand Investing...What To Buy Next?

Question

My husband and I are currently putting our family home up for sale to gain more momentum in buying real estate investments.  We continue to go back and forth on what type of property to purchase for our next deal with the new funds from our sale of our home.  We want to buy an apartment complex or we may do more flips to put a little more cash away before we buy the apartment complex.  What we don't want is to invest in an apartment complex and have that be the end of investing for awhile until we can get more capital for additional flips.  Looking for suggestions in the IL market on what some others have done to keep up the cash-flow with investing so we make the most out of the money we currently have to invest with.

Mike H. · Answer

I'm from down south a ways here in Illinois but I had a former manager that used to live up there in Lake in the Hills. He actually has done some real estate investing himself up by there although he now lives in florida. But I'll chime in. :-)

Is there any reason why you can't buy an apt complex AND continue your flipping?

1) If you buy the apt complex at a good enough discount, you should be able to refi it again after a year and pull some of your money back out.

2) But regardless of that, have you considered using hard money to do your flipping? The returns get squeezed quite a bit for flipping when using hard money.  But if you can find some really good deals, you can do really well. I've got friends down by me that have done several flips this year and they've been able to make the numbers work with hard money.  Definitely less wiggle room but at least you can keep generating that income from flipping.

3) Lastly, if you're selling your personal residence, are you buying another one? If not, you might want to consider that as a way to generate some capital for your flipping.

i.e. Lets say you find a 250k deal that you can be all in at 70% ARV (or 175k). Instead of buying that deal and flipping it, buy that house for yourself with some low money down owner occupant loan and fix it up yourself. Then go get a heloc on that house at up to 90% LTV and pull a bunch of equity back out.  If you are all in at 175k and get a heloc for 90%, that would let you pull out 35k in cash......

Not sure what kind of numbers you're currently looking at for flipping (150k homes, 250k homes, 600k homes, etc), but getting chunks of money like 35k might be a good start to helping you re-capitalize pretty quickly.

I would rather lock in that buy and hold property sooner rather than later though. The sooner you get it the sooner you'll start building real wealth - in equity capture when you buy it at a discount, cash flow from rental profits, principal paydown of the loan, and appreciation......

Jen Hebda · Answer

Thanks George. We definitely bought when the prices were low and are now trying to sell when they are high.  We're fortunate that we have made decent profits on all of our investment thus far.

Great reminder on the tax law!  Thankfully, we won't be hit with that on our family home either way.

What do you guys think of buying an apartment complex outside of my state? Our reasoning is that IL has higher monthly rents but the property taxes can eat up those margins, along with a higher sale price.  We've noticed there are some great deals in other states if we can make sure the areas are decent enough.

George Skidis · Answer

Rule #1: Buy when the prices are low.

Rule #2: Sell when the prices are High.

Before you sell your home you need to ask yourself, "Where are we going to live"? Could you live in an apartment building? Are you going to rent from another landlord? Buy a duplex and live in one side. Buy a smaller home to free up the equity?

Once you answer these questions your investment strategy is laid out for you.

Depending on the actual changes in the tax law. If you have lived in your current home 2 of the last five years you can sell and face no income tax penalty as long as Capital gains does not exceed $500,000.00 on the sale. There is a lifetime limit on this but you could move into a flip. Fix it up and sell after two years.

Good luck and good investing!

Jen Hebda · Answer

Thanks Mike!  As you know the IL market right now seems to be high so getting good deals will take some investment in the marketing arena first since the MLS won't provide enough inventory to keep the cash flow up.

So we are contemplating selling one of our single-family rentals for additional capital for flipping, and continue to flip until the right apartment complex deal is there.  Buy the apartment complex, and work out the funding for flipping, whether it be hard money or HELOC on the apartment complex.

We will also sell our personal residence (we bought this one at a steal and now the market is sitting pretty high so will make a decent profit from it) and either buy our next family home and take out a heloc on that, or buy the complex and take a heloc out on that.

We will need funds for:

-Apt. Complex down payment (20% down payment on $250k-$500K piece of property)

-Funds for Apt. Complex renos (Between $40k-$75k)

-Marketing for flip houses ($5k-$10k)

-Funds for Flipping (down payments if using a lender, reno funds)

I was curious if anyone felt the better road was doing more flips first, or just getting the apartment and figuring out the flips after.

Thanks for the great feedback and your suggestion on getting that apartment complex first!  I'll let you know what we decide and how it goes! :)

Selling Our Family Home To Expand Investing...What To Buy Next?

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