All Forum Posts by: Bryce Shipley

@Bryce Shipley I've been in your shoes.  The challenge of the typical real estate investor is that you are always running out of money.  Asset rich, but cash poor to grow your real estate business.

A couple of options for you here:

1.)  You can cash out refinance and hold the cash out proceeds on your books until you find a larger deal you want to purchase.  Yes, you are paying interest on utilized cash but it's good to have dry powder when you're ready to pull the trigger on something.  If you don't do this... I always say "opportunity never comes at a convenient time."  I guarantee you, when you find your perfect larger multifamily or commercial deal, you are going to be scrambling to refinance your three properties, and the opportunity will slip through your fingers.

2.)  Find a deal with a seller who will allow you to put their property under contract contingent upon you selling your property or properties and doing a 1031 Exchange.  Problem with this, is that not all sellers will be comfortable with this type of contingency or a contingency like this will render you uncompetitive.

3.)  Do a cash out refi with a hard money lender, and use the cash out proceeds as a down payment on your larger deal.  This would enable you the flexibility of getting your down payment money quickly but cost you in terms of higher interest rates.  Most hard money lenders will charge between 8-16% interest effectively; much higher than the banks.  Then refinance the hard money mortgage with conventional permanent financing with a bank.  Or if the larger deal you are buying has enough meat on the bone from a value add standpoint, you can force the apprecation by stabilizing expenses, pushing rents after performing improvements, and then refinance your new deal and pay off the hard money loans on your condos.  This scenario would require you to walk the knife a bit and add a lot of moving parts or variables which you might not be comfortable with.

If I were you, I would go with option 1.  With rates as low as they are right now, you are essentially shorting the dollar.  If you needed a place for the cash for a year or so, perhaps you could be a hard money lender yourself and make some money on the spread until you are ready to purchase something larger.

I hope this helps!  Congrats on being a stay at home parent.  Being a good and present family person was my top reason for earning my financial freedom.  I was able to accomplish that by scaling into larger deals.

I have three questions for you:

1 - What is the risk, who is the risk, who is at risk in both scenarios...leveraged and 100% equity?

2 - What is the cost to the REI in both scenarios?

3 - When is a profit made, in both scenarios?

@Bryce Shipley

Bryce,

I think you are in an excellent position.

You're cash flowing

You own the properties

You owe nothing but insurance and taxes

The market can bust away, who cares, you own them.

The rent market can drop, assuming you will still be able to hold insurance and taxes, you should be fine.

You own them......to me this is a safety net a lot of people don't have starting out. They are taught to leverage, leverage leverage......and don't understand the risk.

In my opinion, you are very close to being able to leverage safely with less risk.

One thing you can do (keep your partner out of this transaction) is take the three deeds you have, find a local bank willing to work with you and leverage the deeds into a line of credit.

Chances are it will be interest only loan, but you will have cash available when needed to purchase additional properties or for emergencies. Be sure the net rental income covers any loans you have until you can pay back in full (another deed in hand) or you can refinance to hold itself.

Now, again, this is my opinion and I am sure I will get bashed for it but I like a good safety net before plunging in deeper waters and leverage too much.

Well if you won't consider cash out refi or HELOC your other option is to accumulate more cash.

Sell the condos, and start all over again only using 20%.  You're losing money if you paid all cash for these units.

You doubt it?  Here's your mission, should you choose to accept it.

Calculate the following:

1 - (Cash flow per month as is times the number of months you've held the property so far) minus the cash you spent on the property = A
2 - A divided by your cash flow per year = B

A = the total dollars you are at a loss so far
B = how many years it will take you until you have recovered all of your cost...and start making a profit.

Now, do the same 2 formulas, except this time calculate it as if you bought the properties using only 20% down...instead of 100% down.