All Forum Posts by: Fernando H.

@Fernando H. Flipping houses is a job, same as any other self-employed business. Buy and hold is an investment and "passive" income. They are apples and oranges. What is your end goal? Do you have plenty of time and and want to trade it for income? Or do you have limited time and prefer to add those income streams?

I have limited time since I also have a full time IT job and my end goal is to make the additional income in addition to my full time job. When comparing both scenarios, just find that I can manage a Flip on a part time basis, short term investment and higher monetary reward than the passive income long term investment that Buy and Hold consist of.

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Originally posted by @Max T.:

I would personally aim to pay down The debt on and improve the performance of the duplex. Maybe even sell your worst performer to help do that.

Once you have enough equity you could utilize a credit line secured by the property to make cash offers on flips or rentals.

After you close on a new property with cash you can then look into refinancing, usually after you improve the property. Most people prefer conventional low fixed rate 30 year loans if they can qualify.

After that cash out refinance they can pay down the credit line, hopefully keep some profit, and then repeat the process with the credit line again.

Good Sound Advice. Thank you!

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Hi BP members! Thank you in advance for any inputs.

I am the owner of 3 rental properties and I'm debating on what my next investment strategy moves should be. I'm fairly new in real estate investing and I been leaning towards selling all 3 properties before the end of 2017 and that is why I need advice from season experts in this area. All 3 properties are mortgaged, have decent equity built in, but my monthly net rental income margins are low for the time and money I have invested. My ultimate strategy is to increase my cash flow. Just seems my current model of renting is producing cash but a very slow pace. That is why I'm debating if selling, and then reinvest my invest strategy is just flipping properties, no rentals might be more profitable and I have experienced in completely rehabbing 2 of the 3 properties already.

1st property - owner occupied Duplex -

Owner occupied in 1 apt.

Rent the other apt for $900 monthly

Mortgage is $1050

mortgaged is 110k

appraised value is 140K

2nd property

Single Family

Mortgage is $665 monthly

Rent is $850

Mortgage is 60K

Appraised Value is 70K

3rd Property

Single Family

Mortgage is $625 monthly

Rent is $950

Mortgage is 70K

Appraised Value is 100K

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Originally posted by @Hattie Dizmond:

Whether the home improvement loan is secured or not has nothing to do with it, unless you're also saying you don't have enough equity in that property to get a HELOC.

for SFH, I already have HELOC of 10K but I have 0 balance on it.

for Duplex, Home Equity is maxed out at 80%

for current property being rehabbed now. Is free and clear, no mortage. ARV is 70K.

Mind you I live in Reading, PA where alot of decent homes, even rehabbed sell for 50k - 100k and rent doesn't really exceed 1,000/monthly unless you go out of the city, is typically for a decent neighborbood is 600-850 a month.

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Originally posted by @Hattie Dizmond:

You have a home improvement loan...if that were paid off, could you not turn that into a HELOC, which would give you a line of credit and should come with a lower interest rate? With it being an LOC, you're only paying interest, when you have money borrowed against it.

Unfortunately the home improvement loan is unsecured and is not lien against the property so is not an option. so that is why interest rate is 8.75% instead of what a HELOC will be at 3%-4%

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Originally posted by @James Triano:

Completely agree with paying off the credit card first and foremost. While it's at 0% now, it won't be soon. Get that taken care of.

I would then tackle the Home Improvement loan next because of the interest rate you're paying. My reasoning behind this is evaluating your situation as if it's a business and you have an overall cost of capital. You need to make sure that your investment returns are far outpacing your incremental cost of capital. I would argue that #2 is certainly doing that for you (if you factored in that you would pay rent to yourself/have someone else in there) but #1 may not be.

You should know that I'm very risk averse when it comes to debt accumulation. Leverage is excellent if you do it the right way, but IMO you should always be looking for ways to become your own bank and own property outright.

I agree with your point and I appreciate your feedback.

Seems option #2 is the popular one. might have to reconsider. Thanks.

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Originally posted by @Hattie Dizmond:

I'm a fan of leverage against your properties, but not personal debt. I would take option #2. You then have the free $20k on the credit card, if you need it to fund part or all of another flip/acquisition. The DTI is one factor, but seeing that maxed out credit card will impact your credit score, which means you will pay more for any money you are able to get underwritten, regardless of your DTI.

This isn't a one dimensional equation. You have to approach it more like a Rubik's cube and understand that many factors impact where you get the most benefit. '

Again, I am a fan of leverage. Read Ben Leybovich's blogs for exactly why. But, ongoing credit card debt at the level you indicate is never good. And personal debt against anything that is depreciable (i.e. a vehicle) should be dealt with, if possible. However, you can do another flip to deal with the auto loan. With the interest rate as low as it is, it isn't killing you. The interest rate is why I would tackle the Home Improvement loan now.

Yes, I agree with all your points. and I appreciate your feedback.

I will definitely pay my credit card in the next year before I incur any interest payments on it but if I pay off my both credit card and improvement loans (50K). I dont believe I would have much buying or credit power to pursue more investments because I need at least 2 years reported rental income to be considered and this is year 1 of reporting for me.

If I go option 2, (2 home equity loans, 1 mortgage and a car loan.. will be too much of a hit on my DTI. and might not pass overwritting).

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Originally posted by @Jacob Sampson:

@Joel Florek

I am concerned, as well, that he may not have much actual long-term cash flow.

Help me understand as I'm not understanding the long-term cash flow mentality..

What is the ratio of cash flow that I should be reaching for on a month to month for my rental?

I have cash reserves (for emergency, vacancy, maintenance) for 6 months for each property.

After I pay off mortgage every single month I am left with the following:

SFH: I am left with $200, free and clear x 12= 2,400

Duplex: where I occupy one of the apt rent free, I make $200, free and clear x12 = 2,400

3rd property: current not making anything, is being rehab as we speak - to be ready for rent in 5 weeks.

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Originally posted by @Fernando H.:

Originally posted by @Jacob Sampson:

payment on home equity loan is about $370 monthly for the next 9 years. so there's no immediate hurry to pay off. Is great to be debt free, I know but even if I pay off everything now.. If you want to continue investing long term on rentals and rehabs, I will see myself in the same predicament in 2 years from now. Thats all Im debating now.. what choice to make.

*Correction*

$370 monthly payment for the next 9 years (8.75% interest) is for the "Home Installment loan"

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Originally posted by @Jacob Sampson:

Also, for me personally, I would be uncomfortable in your position. I think you have done some creative things to get yourself started in the business, and that is good, now it's time to protect the progress you have made.

Bare minimum, I pay off the CC and improvement loan before I do anything else. Your current situation should be as short term as possible.

But great job on getting started! You have bigger balls than I do.

Yes, My plan is to agressively pay off the CC within the next 12 months (currently at 0% introductory offer) ... so thats definitely a requirement for me to tackle head on.

If I pay off the improvement loan now with a Home Equity loan, I feel I will limit greatly my spending power to continue investing. payment on home equity loan is about $370 monthly for the next 9 years. so there's no immediate hurry to pay off. Is great to be debt free, I know but even if I pay off everything now.. If you want to continue investing long term on rentals and rehabs, I will see myself in the same predicament in 2 years from now. Thats all Im debating now.. what choice to make.

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All Forum Posts by: Fernando H.

Fernando H. has started 6 posts and replied 28 times.

Post: INVESTING QUESTION Rent long term VS Selling.

Post: INVESTING QUESTION Rent long term VS Selling.

Post: INVESTING QUESTION Rent long term VS Selling.

Post: Pay off Debt for higher DTI Ratio or Invest? HELP!

Post: Pay off Debt for higher DTI Ratio or Invest? HELP!

Post: Pay off Debt for higher DTI Ratio or Invest? HELP!

Post: Pay off Debt for higher DTI Ratio or Invest? HELP!

Post: Pay off Debt for higher DTI Ratio or Invest? HELP!

Post: Pay off Debt for higher DTI Ratio or Invest? HELP!

Post: Pay off Debt for higher DTI Ratio or Invest? HELP!