All Forum Posts by: Alan M.

@Charles Kao Yes, on any syndication/passive deal I do will be with a fixed loan. The HELOC would only be for down payments on active investments, and then would use cash flow to pay them down quickly.

@Charles Kao Thanks for your thoughts.

I think I think the thing I like about the 2-tiered leverage (some loan, some HELOC) is that I can have a good chunk of change to invest and then use the HELOC for extra investments, but pay it down quickly. I'm fairly risk averse, so I'd like to maintain a decent equity cushion and not max out my leverage, so the HELOC and pay down method would fit well. Also, to clarify, the condo in Boston is on a fixed 30 year - so I'm into the principal pay down years and the rate will stay at 4%. My primary residence will adjust in 5 years or so, but the balance and payment will be tenable even if rates go up significantly.

As far as going full-time into real estate, I do pretty well in my day job (sales management for a software company), and I enjoy the work, so I'm not really looking to go full time into real estate investing. I would like to get to the point where I don't have to work if I don't want, and more time to spend with my kids when they get to the age where they can travel, so my goal is to find some good IRRs and get set up where I don't have to work in 8-10 years. I'm for sure done at 53 (so 14 years) but would love to be done earlier.

Thanks again for your response and thought provoking question!

I'm in the fortunate situation of having a lot of equity but without much cash on hand. I need some help on how best to put the equity to use (or to sit on it for awhile)  As background, here's my current real estate portfolio:

-Condo in Boston. FMV $950,000, $340k loan at 4% with about 21 years left, $610k in equity. Cash flow of about $900/month.
-Primary residence in California. FMV $1,650,000, $590k 7/1 ARM at 2.85% (5+ more years until it resets), $1M in equity.
-Brownstone in Boston. FMV of $2.8M, $0 debt, current cash flow of about $6,000/month but can get cash flow to about $10,000/month as the current leases expire. Sadly, I inherited this property because my Mom passed away earlier this month - I want to run it as part of my portfolio and selling it is not an option I'm willing to entertain.
-About $650k total in available HELOCs on the primary residence and the Condo (zero balance, right now)

I look at the above and realize I've got a ton of equity locked up. I get the advantage of leverage, but I'm conservative by nature - I'm going to be fine financially, so I'm probably not up for taking on a huge amount of risk. I also haven't invested remotely before (lived in Boston when we bought the condo and then kept it when we moved) and I work full time, so can't really take on a bunch of properties that I would have to self-manage remotely.

A syndicator that I trust recommended pulling about $800k-$1M out, doing 2-3 deals with 3-4 syndicators, and tapping into some of the remaining equity with a HELOC. I liked that approach, as it's basically multiple eggs in multiple baskets and still leaves some equity to tap into if something comes up. Taking this amount out would also keep the existing properties cash flow positive by a good amount - so maybe we take a loan out for $800k and a HELOC for another $500k to have access to? That would leave about $1.15M in HELOCs to tap into if something attractive came up in the future. Or do I buy some SFH too and just hire a management company?

Sorry, long post. Thoughts and advice much appreciated!

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $332,000
Cash invested: $33,000
Sale price: $381,000

Not my best deal, but I ended up with not very good tenants and the cash flow (after a $430 condo fee) wasn't worth it to keep it around. Now (2019) it's worth $580k but, without selling it, I wouldn't have been able to afford my now primary residence.

What made you interested in investing in this type of deal?

I needed a place to live and wanted to "house hack" while having a roommate pay down the mortgage with me.

How did you find this deal and how did you negotiate it?

Dumbly...real estate agent showed it to me, I liked it, we offered list, and then got bid up to $335k, only to have some givebacks in the inspection to save a little bit of money.

How did you finance this deal?

15% down, 85% LTV with PMI

How did you add value to the deal?

Renovated the kitchen with stock cabinets, put in hard wood floors, painted everything.

What was the outcome?

Should have held it another 2-3 years, oh well.

Lessons learned? Challenges?

Don't sell during a down market...just hold onto it and suck it up.

Why not recommend to your buddy that take half his money, put that into an account - that account he draws down at 4-5% per year, at least initially. While it's there, he invests it a balanced portfolio of 60-70% broad based index funds and the remainder in domestic bonds.

Then, with the other half, put 25% into syndication deals, 25% into dividend producing stocks, and 50% he dabbles with in things like HML, house flipping, etc. It'll be mixture of passive income along with some real estate - but by cutting his portfolio in half and living off just a percentage of that half, he'll be fine either way.

@Tyler Mundy Keep in mind that, to get a bank to finance 80%, you'll have to explain where you're getting the other 20%. In addition, they'll want to know how much you have in reserve.

More like, you'll be able to find bank that will loan you 70-75% and you'll have to find the other 30-35%. This is easier said then done - people that might be willing to lend you the "down payment", are going to look for your experience at doing deals like these in the past. You'll have to be tight on your numbers, a stress test, and have good credit and income yourself. While you may be able to convince yourself that others would lend to you (because you, in your own head, think you're a good guy and this is a good investment), all the lenders out there won't just evaluate you in isolation, it'll be compared to EVERY other investor out there. Is Tyler more or less risky than most people we lend to? Probably more. Is Tyler more or less experienced than other people we lend to? Probably less. Is Tyler's deal better or worse than other possible deals we'd have to turn down to do this one? Probably worse.

So, it's not impossible, but you'll be in a far better position if 1) you have some experience 2) have good income and credit and 3) have some sort of equity and reserve to include.

Super helpful perspectives, thanks everyone!

Does anyone have a sense of what it cost to update (not gut) a multi-family that's based in a brownstone in downtown Boston?

3 units, about 2,000 square feet each. 3 beds, 1.5 bath...potential to make it 4 beds and 2.5 baths as part of the update. Basement is 2,000 square feet and unfinished as well. Kitchen and bathrooms are dated. Windows are reasonably new. Rough is new. 

Thinking about adding a roof deck, updating the kitchen and bathrooms, redoing the floors, painting, etc.

Hoping for an estimate of how much it would cost to pave a current grass area that's about 50x80. I also might have to pay the paving of the bigger parking adjacent lot (100x150) in order to gain right of way access.

Also, how many parking spots can I fit into a 50x80 area? Keep in mind it's in Boston, so will ned a place for snow.

Does anyone have a sense of what it cost to update (not gut) a multi-family that's based in a brownstone in downtown Boston?

3 units, about 2,000 square feet each. 3 beds, 1.5 bath...potential to make it 4 beds and 2.5 baths as part of the update. Basement is 2,000 square feet and unfinished as well.