All Forum Posts by: Dori Arazi

@Meredith Parker, HELOC rates will more than likely be lower than traditional financing costs. HELOC is "cheaper money", so I would personally rather have my borrowed cash against a HELOC than a financed property. That way as you incur financing costs for the duration of the rehab, and sell or rent, you are incurring less cost. Hence less potential risk.

Though I'm pretty risk averse, I wouldn't pull a HELOC on my primary if I couldn't cover the costs out of pocket as part of my monthly primary payment.

I've been fortunate enough to have accumulated a nice actionable amount of equity and I'm raking my brain on how to best leverage it. 

I'm running SFR models against 1 or 2 more consolidated investments in Multi Family Commercial. And the figures seem to be leaning heavily towards the SFR model. I must be missing something.

Considering commercial cap rates don't account for financing. Once you add financing into the mix your cash on cash returns are FAR lower than SFR. Even if I buy commercial at a lower cap rate (lets say 6%) and raise the value in repairs, rent increases and fat cutting to lets say 8.5%, my final cash on cash returns are still lower than a average to good SFR deal.

I ran a models on $4mil value with financing. 

SFR, at 20% down 30 years at %5.5 - 1% value to rent and conservative operating costs. I'm looking at a cash on cash return of around %8+

Multi Family commercial at 25% down 20 year amortization with a 7 year balloon - Cap of %8.9 , I'm looking at a cash on cash of about 5%.  

I know finding 1% rent to value SFR deals at a financed value of 4mil would take quite some time (in today's market, maybe not in 2-3 years) while a commercial property can potentially be aligned faster. But as an over all strategy commercial doesn't seem to make financial sense.

What am I missing? 

Hey @Meredith Parker. Welcome to the world of RE! 

I am relatively green compared to many people in this forum, but I'd say these are all great ideas, depending on your situation. Though here is my 2 c. 

I personally shy away from flips. Contractors "quality" varies GREATLY. A not so great contractor has 2 main risks: Price creep, which will more often than not end up costing you x2 what the bid was, and time creep, which can also take twice as long as expected.  Once you finish the physical flip you then have to market and sell the property. Closing can take 30+ days. 

So the worst thing you can do is finance a property for a flip, at that point you are also liable for a monthly financing payment as the contractor is taking their time and when your house is on the market for sale. 

Cash buys for flips are much safer, but there is still the issue of finding a reliable contractor (I'm still yet to find one). 

If you can find a good deal that you can conservatively account for the above variables and still come out on top, then its a good deal and you should go for it. 

I'm personally a big fan of the BRRR method. It leaves you with a property in hand, that if you bought it right and renovated right, has a good cash on cash value long term.

They didn’t charge rent for the first 3 months. 

I’m less worried about the deposit. They trashed they place beyond belief. 

My lease with tenants states that if they break the lease early the are liable for 1 months rent. 

The property manager was meant to charge them 1st, last and deposit on entry (to cover the lease break scenario). That amount was charged, but instead of being set aside was used as if the tenant paid 3 months in advance. The tenant now broke the lease and is, of course, not cooperating with paying the fee. How should I handle  this scenario (besides changing property managers that is)?

Thanks @Paul Allen! That helps clarify things. I should be under the $500K at that point 

@Mark Hughes, As it stands with the current mortgage the house -barely- breaks even. It was a terrible cash flow play though did well in equity. If I refi or HELOC the payments will push things over the edge, it would be unlikely that I can find a property to buy with that pulled money that will balance out the payments.

@Grant Rothenburger, coming on 2 years this October. 

I hope you guys don't find this benign or unfitting for the forum, but I find it incredibly inspirational and educational to see how people think and strategies. 

So on that note, if I came to you and dropped $1.5mil in your lap (out of the goodness of my heart, I'm a nice guy like that). How would you invest it? Lets make it interesting. Say $500K of that is tied up in equity. So we can discuss leveraging as well.  

So to clarify

It’s final sale price minus initial purchase price minus improvement price that needs to be under 500? 

@Dave Foster, that makes sense. Thanks Dave. Sadly I don’t think this property can rent for running costs. I’ll do the Matt and see where I have more potential loss. 

What can you do if you have more than $500K in equity when selling your primary residence? Can you "1031" the balance or any other restructure to not pay tax on the gains?