All Forum Posts by: Audrey X.

@Eamonn McElroy

There's always cash out refinance if there's no HELOC. Ideally, the property will be paid off in 15 years or 75% paid off. Who wouldn't loan money on a property free and clear or close to free and clear? You keep leasing it until that money is paid back by your tenant and you still get tax deductions. The RE market is never going to crash like it did in 2008. Plus, the stock market crashed in 2008 too so it's not like your investment is safe there depending on the economic cycle.

Everybody sells the 7% compound interest thing but I haven't seen my index funds grow at an average of 6% in 10 years with the highs and lows in the market. The funds go up mostly because I keep contributing each year. The actual return in 10 years basically kept me above inflation. So I wouldn't bank on those compound interest calculations. Just keep saving money and hope your principal will be there when it's time to withdraw.

@Eamonn McElroy

You don't sell the house, you get A HELOC or do a cash out refinance. 100% tax free and you keep the property. The rates of a HELOC and cash out refinance are much lower than what the student loan interest rate is. It can work with one property in 15 years if the numbers are right.

@Martin Silverstrim

Hi Martin, unless you're buying in cash, I haven't found any conventional lenders who would finance a house to a LLC. I know some folks say you can deed it to a LLC after closing and not tell the lender, but that would give the lender the right to declare default, if and when they choose, and that's too big of a risk for me personally. Commercial lenders will finance to a LLC but the rates are horrible.

I don't know where you live but the transactional cost of maintaining a LLC is also a factor you need to consider. If you live in a state that's cheap to form a LLC and cheap to maintain it each year (annual registration fees etc), then it may be worth it assuming you can get around the lender issue.

If you can, diversify like what the others said. In my experience, the stock market has not really given great returns in the past 10 years even though we've had a bull market. The compounding thing hasn't really played out for my portfolio and I invested in index funds. So I wouldn't bank on that S&P 500 for 15 years. You'll be lucky if you get an average 4% return over 15 years. I think the real value of 529 is being able to save tax free and grow tax free, and if your State allows a deduction, you get an extra tax benefit.

In contrast, my real estate portfolio has done far better in cash flow and equity the past 10 years. I plan to use the equity in real estate and 529 to fund my kid's college fund.

Why don't you download an investment property calculator on your phone. That's what I use to crunch numbers. I think Bigger Pockets also has an investment return calculator. You don't need to factor in loss of opportunity costs elsewhere. Only the net rent is considered in your ROI. If your ROI is 10%, it just means it will take you 10 years to recover your original investment, i.e. the $20,000 you put down. ROI does not take into account equity, which is the $ in rent that pays down your mortgage. So if you were to sell in 10 years, you would recover your original investment plus net some extra $ in equity and hopefully appreciation.

Purchase price: $95,000

After repair value: $105,000

Gross rent $1,250/month

20 year Fixed option HELOC $71,250: $500/month

Cash down payment: $23,750

Taxes: $93/month

Insurance: $32/month

HOA: $276/month (this is a condo unit, the HOA is responsible for pest control, trash, and everything outside, so CapEx)

Net Cash flow: $349.00/month

We asked the seller to buy a comprehensive home warranty ($450 annual) in case anything breaks the first year. 

Note I did not include closing costs. The HELOC closing was free b/c it was paid for by BBT. The cash closing for the property was about $1000 (inclusive of attorney fees, title insurance and recording fees)

@Jordan Pothier Hi Jordan, my husband and I recently purchased a rental property using a fixed rate HELOC through BB&T. The equity from our home allowed us to purchase the property all cash. The rent we collect pays the HELOC and generates $150+ in cash flow after expenses. If we didn't tap the equity, that money would have just sat there tied to our home. We tapped the equity because the market is so hot in my area and the FMV went up substantially. Rather than having that FMV/appreciation disappear, we wanted to turn it into something tangible. So, if you can find a deal where you can purchase the property in cash and cash flow, tapping that equity is not a bad idea. What you don't want to do is use equity as down payment to finance another property. Going from one to three loans (home mortgage, equity loan, and financed loan for investment) will not make sense financially. Hope that helps

@Andrew O'Kane @Andrew O'Kane Congrats on having a solid job, no debts, and being so young! Don't forget about state income tax when calculating your net take home pay. Being in a similar income situation, this is what we have done. In addition to maxing out our 401k, we also max out our IRA to convert to Roth IRA. We then invest our extra cash into real estate. My husband and I now own 4 rental properties, 2 town houses and 2 condos. The 4 properties pay for themselves and the extra cash flow pays our primary mortgage. We didn't plan for this. It was just a way for us to invest the extra cash and put it to work rather than having it sit in a bank account. We live in a market where we can still find decent properties between $95,000 - $120,000. Being a high wage earner, real estate helps lower our taxable income. We don't plan to rely on real estate to become financially independent. Rather it's just a vehicle for us to make our money work. We both enjoy our day job so do what works for you.

@Aditya Maini For me, I wouldn't invest in a rural condo unless my ROI is at least 25% a year, allowing me to recoup my initial investment in less than 5 years on paper. You don't want to tie up your liquid cash in an investment that you may have a hard time pulling out, especially with a low cash flow. I'm not sure what your investment strategy or goals are, but if it's pure cash flow, honestly, the numbers are not great. You're renting to low income, rural tenants. They'll eff up your property or may skip payments. Unless the condo is relatively new, maintenance issues will inevitably come up. No HOA means you're responsible for interior and exterior. I own condo units and I have found that it's harder to sell and refinance a condo than it is with SFH. Condos can be a good deal but this one does not cut it. Don't let the fact that you can own it free and clear mislead you.

@Aditya Maini You're making a lot of assumptions and it sounds like you've already made up your mind. Based on your numbers and the fact that this is a condo unit in a rural area with no HOA, my conclusion would be that this is a perpetual money pit. Vacancy, repairs, and maintenance will constantly eat up your ROI. When you decide you want to get rid of it, finding a buyer will be tough. But it's your money, your choice.

@Jacob D Adamczak Income to debt ratio is a big factor. If your total debt (student loans, credit cards, car loan, etc.) plus the mortgage exceeds 50% or more of your take-home pay, some banks may not approve you. FHA loans may be more lenient, but paying down your debts and saving for a decent size down payment will definitely help.