Young Investor Looking For Ideas!

[Grant Snyder]

Hello Bigger Pockets peeps,

Feeling stuck lately and trying to spark ideas for my next real estate move.....

So here we go...

I'm a 24 years old college graduate living in Michigan. I work at a local bank making $40,000 a year. 

My real estate includes my personal residents which I purchased in November 2016 for $130,000 and house hack to a certain degree with one roommate living with me.

I also own a 4 bdrm college rental in a nearby market that brings in $1540 a month but due to taking an equity loan out, I only net roughly $250 a month. 

For cash I have access to about $40,000.

Not looking for the "Golden Answer" but hopefully some discussion might spark some ideas!

[Mark J.]

Here's my slow, but steady game plan that could work for you (or anyone).

1) Get a Personal Line of Credit (PLOC) from a local bank. Actually, get two if you can. ;) You'll need to be persistent, have a >650 credit score, low debt-to-income ratio (could be an issue for you @ $40K per year, but a long W-2 history helps a lot), and a good proposal & presentation when meeting with the banker.

2) Use the funds from one PLOC to purchase a foreclosure / REO / off-market property that needs work and is priced (or obtainable) at >= 30% discount from MLS comps. Try to get at least a $80-$100K PLOC.

3) Use your own funds, a low-interest credit card, or a second PLOC to fund the renovation.

4) Conduct a disciplined and cost-conscious remodel.

5) Get a cash-out refi at 75% ARV. Pay down the big PLOC to zero and pay down the reno PLOC or other source of funds. If it all works out well, you could have zero of your own cash invested, a low-interest 30-year loan, and a steady cash-flow of at least $400 per month on an gradually appreciating property that has actually cost you nothing out of pocket.

Here's the breakdown of this in action from a recent purchase of mine:

This was nearly a perfect deal, except for the $4,500. Although I could have kept the $4,500 as an outstanding balance on the PLOC (at 4.75%) and pay that down with the monthly net cash flow, I decided to just pay that out of pocket get the PLOC back to zero outstanding balance. The way I looked at it (at the time) was that $4,500 invested in the stock market or any other investment vehicle would never earn me a $6,600 annual return.

So, basically for $4,500 out of pocket, I purchased a 3/2 rental property in a good neighborhood, got a low-interest 30 year mortgage that the tenants are paying off, created $23,000 in equity, and net $6,600 (before taxes) per year.

This is a quick, back-of-the-napkin sketch of the strategy that I use. I'm on my fifth property now.