Indianapolis - What strategy would you do??

Question

Been awhile since I've been on the site steadily. My wedding in a month is sure taking up a lot of my real estate time. Pretty good problem to have though I guess. :)

Anyway, I'm currently sitting in a situation where I'm not sure what to do. I bought my first rental in April and everything is going really well with that one so far. I want to buy a couple more before the year ends if possible. Being in Indianapolis, it's reasonable to buy a SFR for under $50k (I purchased my first for $47.5k and it's renting for $825/mo), so I don't need a ton of money to buy another. I currently have about $20k that I could move around in investments (stocks, etc) that I could use to purchase another property. Here is my question, what strategy would you do?

1) Buy another property, taking out another mortgage (my 3rd counting my residence) and put 20% down plus closing costs, origination fees, rehab etc. All of this, if I find the right deal, could be down for $14-15k or so. This is option 1.

2) Continue saving up and wholesaling (I have now done 2 deals with a partner and I'm working on more now) until I get to the point where I can buy a property with cash, rehab it using cash, and then pull all of the money back out with a HELOC.

Option 1 would allow me to purchase my next property soon. Option 2 would take longer to purchase another, but after my money would be pulled back out of the deal, I could reinvest it all and continue the cycle, acquiring a bunch of properties in a short amount of time.

What would you all do? What do you see as the downside to either strategy? Thanks a lot! (Sorry that got long!)

Shawn Holsapple · Answer

@Rodney Kuhl - as you know, I'm still aggressively leveraging everything I can get via private lenders, local small banks, sub2 and other creative means.

I believe we are at the end of the "very low" prices and will only see them continue increasing over the coming months/years.

I typically buy with cash from private lenders and then rehab as needed to ensure a high appraisal and then refi 75% LTV from local banks.  This gets my private lenders paid off ,with a profit, and I end up with zero invested and an infinite ROI.

Rodney Kuhl · Answer

@Cary Trusty Sounds like you are on a good track. I bought the "expensive house" (though it's not really expensive as I set the limit about $90k below what I "qualified" for, haha) back in October. I feel like that is out of the way and now I can focus all of my extra money on acquiring rentals, which is great. I'll shoot you a PM and we can connect there.

Rodney Kuhl · Answer

@Steve Lawson Thanks for posting those. I'm only looking at SFRs right now, as I think that provides more flexibility down the road. Plus, many have informed me that multifamily just don't perform as well in Indy. I'm mainly looking on the north/northeast/east parts of Indy right now since I live up in Fishers, makes things easier for me, plus the rent rates are pretty decent there.

@Shawn Holsapple I would love to use the strategy you use, buying with private money and then pulling it all back out with a HELOC. I feel like I need to prove myself more first by acquiring a few more before I ask for people to invest with me. Definitely what I plan to do in the future. As always, appreciate your input!

Cary Trusty · Answer

@Rodney Kuhl

Thanks for posting your situation. I'm not exactly there but its helping me understand my options as I'm sure I'll be in your situation soon enough. I'm in the middle of downsizing my lifestyle (selling the big house for a cheaper fix and flip, selling the gas guzzler sports car for a hybrid) and just reducing my expense line so I can pump all income into investments.

Once all is said in done, I'll probably have a similar amount of money to invest. My initial thought was to get leveraged and do as many conventional loans as I can and then move into portfolio lenders once I start building a reputation. I'd be interested in hearing what route you end up taking. Let's connect.

Steve Lawson · Answer

Hi Rodney - We have just the properties you are looking for.

*NEW* 1260 N Sheffield

Rodney Kuhl · Answer

Thanks, @Mike D'Arrigo ! That's kinda what I'm wondering. With prices still low but rising, and the cost of borrowing money so low, it is a good idea to do it the conventional way and leverage using a traditional mortgage. I think that's a great idea. But if I do that, I'd eliminate the second option. If I was using $15-20k as down payment/rehab/etc, that would put me that much away from being able to do option 2. I feel like once I get to option 2, I can always go back to option 1. But I can't do option 1 and go to option 2, if that makes sense.

First rental is doing great, but I'm still setting aside money for vacancies and repairs, as I know those will pop up at some point.

Mike D'Arrigo · Answer

@Rodney Kuhl As long as you have reserves and your debt coverage ratio is at least 1.5 times, I would leverage and build your portfolio as fast as you can. I don't see option 1 and option 2 as mutually exclusive. Why not finance as many buy and hold properties as you can while you wholesale. As you know, prices are going up in Indianapolis. Why not get another one at the current low cost basis? $20K is not a lot for down payment, closing costs renovation and reserves however. I can't stress the importance of having reserves. Your 1st property is doing well but you will have vacancies, repairs, turn over costs etc. It's just a matter of time and how much. Plan for the unexpected.

Indianapolis - What strategy would you do??

Most Popular Reply