Best use of $150k today?

Question

Going to take advantage of low interest rates and refi my primary house out of construction loan. Locked down 2.75%. Have the opportunity to pull out an additional $150 in equity and wondering the best use. Considered buying a single family house all in at $150, rents for $1300. Thought about paying off two currently owned and financed single family houses with loans at 4.85% or possibly something totally different. Don't have the time for any more flips and prefer buy and hold benefits to syndication deals. Appreciate your thoughts.

Brett Hennessy · Answer

Thank you everyone for the replies and advice.

@Stone Saathoff BRRRR is a good way to go. I had success with it in Huntsville a few years ago on two C- properties. These days the market is so hot here that it is difficult to find good BRRRR opportunities unless you are looking to take a C- to a C+. I have since sold both properties as the turnover costs and headaches outweighed the cash flow. Have upgraded to B+ properties in a better equity growth area. Keep up the good work in Texas!

@Taylor L. I have been studying up on multifamily for about 18 months now. Would like to get in that game, but like you pointed out time is always short. I do like your suggestion to leverage modestly. Definitely makes for a safer investment.

@Eric Schmid Thank you Eric, solid advice.

@Whitney Hutten Really appreciate the guide, it is a great read. I have been struggling a lot lately with defining my strategy. I think I know my Why, but could use some help focusing which steps I need to be taking to get there. I have been investing in buy and holds for 8 years now, with 7 currently in the portfolio. I did one flip, one 1031, am invested in a syndication deal with Jake and Gino, have a SDIRA parked with some folks doing flips. Starting to feel like I am chasing every shiny thing.

@Joseph Crunkilton Appreciate the advice, I will check out @Zach Lemaster. Glad you are having success with Rent to Retirement, have heard nothing but good things.

@Luke Stewart Thank you Luke.

@Chris Clothier Chris, hadn't considered refi on the existing loans. I will look into that. Never too much detail, really appreciate your thorough analysis and plan. Thank you for taking the time to think it through and for sharing. I like how you broke it down into three separate investments each enveloping its own strategies within the strategy.

@Jesse Daconta Its true, single family after a few becomes a good deal of work. Ultimately I would like to reach the point where I hand off management and get my time back. Or, invest a higher percent of the portfolio into truly passive syndications. My issue with syndications though is ROI. The deal I have been in for a year now has failed to reach its projections. Even when it does level out and reach those projections the profit is taxed reducing it to 6%. It is to commit to 6% when you know, based on your other investments, that you could be making 15-30% on that same capitol.

@Josh Walker This is a good idea. I had considered it but hadn't done any research into HELOC rates or how they are structured. I really like the idea of using it as a rental property rainy day fund. What type of interest rates and duration have you been able to lock down?

Account Closed No doubt cash flow is great. In my experience it is essential, but is not actually where money is made. I know there is tons of debate on this, but for me, cash flow has always been a very necessary safety buffer that keeps the machine moving and growing. Where I have seen the biggest gains is in the sale from both sweat equity and lucky market timing. If you buy right in the right area and hold for 5-10 years properties can easily double in value. If you buy a 200k property and it is cash flowing 500 a month that would be 60,000 after 10 years. Pretty sweet. If it was bought in the right area, it may have doubled in value earning you 200,000. Even if it doesn't double but only increases 5% per year that is still $100,000. The first 5 years of my quest was focused on cash flow and using it to pay off my personal mortgage and vehicle payments. Then I sold my first house and realized where the majority of the profit came from. Not saying you should ever bank on appreciation just that you should look in the areas where it is most prevalent and always make sure there is adequate cash flow in a deal to carry you to appreciation

@Dave Wolcott Thank you Dave. This is exactly why I am trying to find a better use for that trapped equity. The struggle I have with the syndication is the return. Most seem to offer 8 or 9%. After paying 2.75% interest and 3% tax on the syndication profits, ROI is getting a little low for the risk of mortgaging 90% of my primary residence.

Much to digest and figure out. Will update this post with my final direction. Thank you again to everybody for your time and thoughts.

Joseph Crunkilton · Answer

@Brett Hennessy

If this is your first investment, I'd recommend having a look into one or a couple turnkey properties. These are renovated properties, with tenants in place. It's a low risk way of getting some good returns for your money.

With turnkey it's all about who you choose to invest with. I'd recommend @Zach Lemaster over at Rent to Retirement. I just closed on a property through them. I got a fully renovated house, a tenant in place, a property manager all for a very affordable price.

Based on your situation I thought it'd be a good option. If I can be of any more help feel free to pm me.

Zach Lemaster · Answer

@Joseph Crunkilton Thank you for the shout out!

@Brett Hennessy

Please let me know if you have any questions on anything. I typically like to start with an initial phone call to discuss your investment goals/experiences, answer any questions you have, and tell you all about what our company has to offer. Please let me know if this is something you would like to schedule.

Also for your reference, here are some other forum discussions from investors that have worked with us in the past like Joseph. I'm sure you'll find this informative. Looking forward to hopefully connecting in the near future!

https://www.biggerpockets.com/forums/92/topics/808479-rent-to-retirement-experienceshttps://www.biggerpockets.com/forums/92/topics/518583-feedback-on-renttoretirement-and-zach-lemaster

https://www.biggerpockets.com/forums/92/topics/765347-rent-to-retirement-review

https://www.biggerpockets.com/users/ZacharyCole/referenceshttps://www.biggerpockets.com/forums/12/topics/533693-anyone-worked-with-renttoretirement-turnkeyhttps://www.biggerpockets.com/forums/92/topics/581730-rent-to-retirement-zachhttps://www.biggerpockets.com/users/ZacharyCole/references

Joseph Crunkilton · Answer

@Brett Hennessy

Sorry, just saw you are very experienced! Turnkey or a more active investment would help get you more income for your money.

Roni E. · Answer

I would look at refinancing or paying the almost 4.85% debt. I would also make sure you make money on the side just for rainy days or issues. I know some folks have said jump into a syndication I would only think of doing that if a) property is bought a discount b)High Cash on Cash return c) cost seg done so you get cash but could have no taxes due to the accelerated depreciation. Right now triple check the deal as a lot of unknowns in the market

Josh Walker · Answer

@Brett Hennessy - I would consider going with a HELOC to pull the equity out instead of a cash out refi. While your rate will be a little higher and will be variable, you will have the ability to pay interest only on the HELOC, which can help your cash flow. Also, that interest payment will drop as you pay down the HELOC. One thing I do not like about a cash out refi to access equity for deals is that it has a big negative impact on your cashflow and the payment does not go down as you pay down the principal.

I like to use my house as a bank and create a snowball of sorts. Pull $50k for a deal and pay it down as fast as I can (with the deal and all other available cash flow).  Do it again, but now you have 2 deals paying it down. Then 3, 4 etc. over time, this can create a lot of additional income. It also provides some safety if you get into a bind since you could just pay the interest only and/or access what is undrawn if necessary.

Chris Clothier · Answer

Great job on getting yourself into this position!

Strictly putting myself into your position without knowing anything else, I think I would look to refi my two existing loans into a new rate and possibly shorter term, but rolling all costs into the refi.  You may be able to get better terms right now and a shorter period puts you closer to pay-off without using any of the available capital.  I personally prefer to use leverage to acquire but not hold property.  So, I would probably look to put part of the capital into an easily accessible investment with a lower return, but the upside is it's available for back up.  I would look to put maybe 2/3 into downpayment on 2 of the best investment properties I could find at roughly $150 each.  Those could be local or distance deals and doesn't matter about hands-on or passive.  I would place them on a short term note (15 years) you could use $50 to make a 25% downpayment and closing costs and rate buy down to put you in a great position to generate the best return and own in a short period of time.  The other $50 that you put aside earns that lower interest but remains ready for you to take advantage of other opportunities.

That may have been way too much detail (sorry) but again, if I found myself in that position that is what I would be doing.

Stone Saathoff · Answer

Hi @Brett Hennessy, I would definitely recommend putting that money to work using the BRRRR method. You have enough funds to handle a purchase and rehab right in the rental property sweet spot. Imagine buying a house for 95K that just needs new flooring and paint, rents for 1250/month, and appraises with the bank for 130K so you can pull most of your cash back out after. These are the types of deals I see in the San Antonio, TX area on a regular basis. Alabama is a great place to invest too.

Dave Wolcott · Answer

@Brett Hennessy if you are an accredited investor you may want to consider investing in a passive multi-family syndication investment.  This will transition your trapped equity from your residence with a zero rate of return into a low risk and passive investment with strong returns.  This will also reduce your risk by diversifying from your other single family investments.  Additionally, you can use the cashflow from the syndication to help with any additional debt service on your additional note or work on building building your cash reserves.

Think about your goals first and then back into it with the right strategy for you.

Good luck!

Jesse Daconta · Answer

It depends on what you want. If you want a job, keep buying more single family homes. If you truly want your money to work for you passively, I recommend investing in an apartment syndication.

Best,

Jesse

Best use of $150k today?

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