All Forum Posts by: David M.

I agree with a HELOC over a refi. I had a fixed rate 10 year HELOC on an investment property in Arizona from National Bank of Arizona. I used the equity to fund the next purchase and it worked out great for me. I didn't have any interest charges until I withdrew the funds, and it was very easy. NB Arizona is part of Zion's Bank so you might check if there are any local Zion's affiliates in your area. Good luck.

@Kyle J. thanks for the explanation, that's a big help.  It seems hard money and private money are not necessarily that different in function.  As such, these are great flipper tools, but don't benefit the long position as much for the points you mention.

What are some avenues a buy and hold investor can look to that are win-win like the flipper and hard/private money? I have a HELOC on one investment property, but it's really more of a down and rehab amount, not a cash purchase amount. I do have a prequal for my preferred price range of $200K for 30 years with 25% down but at 7.75%. It sounds like that is my best option as I wouldn't need to refi in 6-12 months or find anyone else. Basically kick this question down the road to the next property...

Thanks @James Wise!  So in your experience, does the PM ride along for the entire horizon like a silent equity partner, or do they get a capital event somewhere along the way.  I guess my question is, would a private money buy always / usually / sometimes /never expect to refinance out.  It sounds to me like maybe 1/4 to 1/3 of PM likes to take an equity position with a solid investor to ride to the end, while the majority 2/3 or so, expects a cash on cash interest rate annually with a share of appreciation at recapitalization.  If so, does one always need to keep a commercial lender on the back burner because private money will need to be retired before even 15 year "traditional" term?

Thank you to everyone for your input, I'm sure this is pretty basic to some people.  It is by far the most conservative aspect of my portfolio.  I appreciate all of the information to help me understand this avenue better.  I've been hesitant to look for private money because this has been a side hustle and I've been able to get by with a traditional lender and down payments thus far.  No more W2 though changes how easy it is to get that next property, despite the usual 20-25% down ready to go...

@Todd Dexheimer Thank you for the insight, much appreciated!

@Saravanan Saravanan thank you for your reply.  That brings me back to the original question, is Private money there for the 30 year term, or are there different expectations on repayment than a traditional mortgage lender?  If Private money expects repayment in say 5 to 10 years, what does the buyer typically do?  Does an investor find a second private lender to pay off the first at that time, or how would the exit work aside from selling the asset?  Thank you!

@Kyle McCorkel Thanks for your feedback.  I've thought about plastiq.com or something similar to get cash from my credit cards for 2.5%.  If I were to take an even $100,000, that would cost $2,500.  I'm sure my average interest rate is around 18%, or maybe a little less, around 1.5% per month.  If I hold for a six month seasoning, that would be $9,000 in monthly interest and $2,500 in initial fees for a total cost of $11,500 or 11.5%.  That is fairly comparable to private money  / hard money.

The only questions is, what happens if there is a crash in month five?!

@Jake Cohen Congrats, amazing property and great financials!  I don't know your area at all other than where to find it on a map, but I also operate in a strong winter/spring seasonal market in Scottsdale.  Are HOAs a big deal in your area?  They seem like they would be.  Have HOAs impacted how you operate?

In North Phoenix/Scottsdale I verify all minimum stay requirements with the HOA before even touring a property, and it seems like only about 1/3 or the properties I investigate allow short term rentals. It also seems like the general public is not so enamored with Airbnb the way it was a few years ago. My local NextDoor App has had a thread complaining about bike week guests at air bnb houses for a week now, while AZCentral.com has run a couple stories about non HOA neighborhoods changing their CCRs or similar restrictions by hiring a lawyer to tally a neighborhood owner vote and then setting forth the changes.

What seemed like the early days of the internet now does not as much...

Hi Everyone.  I've been actively investing in single family residential properties for about five years.  I've bought long term rentals and short term rentals.  I've bought a freshly renovated property and I've bought an original property to renovate and refinance.  I have learned a lot and thankfully have a nice little portfolio today.

As I dive further into the real estate business, it is really what I want to do, but I see how much money it truly takes to grow.  I'm even contemplating starting a property management company to keep me close to real estate all the time, instead of for my "side hustle".  At this point, I'm considering pursuing private equity for the next portion of my portfolio.

My question is this, what does private equity expect in return?  As I understand the model, the general incentive to private money lenders is to put money in a relatively safe investment with a multiple better return than say, T-Bills.  I realize this can vary widely, as private money can be anyone from my Uncle to an unaffiliated wealthy investor.  However, is there a typical expectation of the total return of capital, or a long term position in the property?  It is hard to model properties without this basic understanding, of course.

I am a buy and hold investor, so the position I take is with the intent of keeping the property.  I don't understand the process to refinance out the private money if it is expected to be returned in five years for example.  The property's monthly net cash flow would have to generate the investor's return, which doesn't seem problematic.  But then what, are we partners in the property long term, or do I pay down the private debt long term with my net cash flow from the deal, etc.?  Also, what are some expected down payments for an arrangement like this?  Finally, if there is something obvious I am missing, please feel free to let me know (nicely, please).

Thank you for your input, it is much appreciated!!

@Jake Mires Without knowing all the minute details of your situation, I'd say keep it over sell it.  Let's say I'm you 16 years from now, or the ghost of Jake future...

I bought my first house in Scottsdale in March 2003 and paid $230,000.  I took a 15 year mortgage with probably 5-10% down (don't exactly remember).  I put in granite kitchen counters (it was 2003 :) ) and porcelain tile throughout, probably $15-20K.

17 months after purchase, I had an agent list the home for $350,000, and sold for $330,000 in two weeks.  I put the $60-70K cash down on a 3,705 sq ft McMansion new build in 2004 on the North edge of Phoenix.  Can you guess what happened?  First, I enjoyed a fee appraisal on that property of $575,000 six months after close in Fall 2005.  Two years later, however, you could have your pick of a dozen similar houses for about $190,000 each.  For real.  Needless to say, I missed that first house.

Today, we rent our primary residence, and own multiple investment properties.  This allows us to always live where we want and not pay to repair a house with no tax benefits for doing so.  Meanwhile every house we maintain is paid for by someone else, we just have to schedule any necessary maintenance, in an oversimplified end point sort of idea.

My wife and I were just talking about how we wished we never sold that property. Today it would be paid for since it was only a 15 year note. It is probably worth not too much more than we sold for, maybe $350,000-400,000. However it would probably rent for $2,200-2.500 per month, which would be $26,400 in gross rent per year, and I could take a HELOC to use $100,000 or so for a new purchase, and rent would still cover that loan.

I'm rambling now, sorry, but just wanted you to understand why I offered my suggestion.  Good luck you're six years ahead of where I was!

@Samuel Chua

As was mentioned above, bi-weekly payments add a full payment every year, so part of the faster pay down is more money paid in the same amount of time.

If you are worried about cash in 5-7 years why not see what a home equity line of credit (HELOC) at 75-80% loan to value can unlock for you. Or if rates decrease in 5-7 years, even a cash out refi? It's hard to say what the right play would be in half a decade without seeing market trends and conditions. Sale will trigger capital gains which remove a lot of the benefit of paying off more, unless you 1031 the proceeds. Good luck!