All Forum Posts by: Gary Parilis

Actually, a little southeast of Pittsburgh. If you make a recommendation, please tell me WHY you recommend them. I don't want to replace one bad manager with another one. 

Thanks!

Thanks. I do intend to pay off the (small) mortgage that's in place now. There won't be any other liens. If necessary, I'd consider a mortgage instead of a HELOC, but that would be an inferior option.

Anybody know of a bank that will do a 1st postion HELOC on a rental property that is a manufactured home in Florida?

I acquired the property subject-to, and the existing mortgage is with Ameris Bank, and they would do it, but they say I'd need to go to the local branch -- and I don't live in one of their states.

I'm almost done with rehab, so I'm on the hunt for a bank that can provide this LOC.

(Why a HELOC instead of a mortgage? Because I don't need the cash back. I only need to pay off the small existing subject-to loan, and beyond that, I want cash flow and *access* to cash, not actual cash in the bank that I have to pay interest on while I'm not using it.)

@Justin Famulari, who do you recommend? Did you just shop for rates or also TCV? 

Seems to me the key variables are: rate, TCV, draw period, origination/application/loan fees. Also, I hear some charge transaction fees,.

My properties are in PA and FL.

@Jason Robinson

For someone “super green”, you’ve figured out an awful lot – and gotten a whole lot right. Congratulations on your excellent self-education!

To calculate cash flow, you need to do two things I don’t see here:

1. Make an assumption about the percent vacancy, and adjust the annual rent accordingly. You may go several years without a vacancy, but you have to allocate that as a cost.
2. Subtract ALL costs from your rent (including utilities if you’ll pay them, any management fees, avg. repairs/maintenance). Like vacancy, you have to allocate the costs of water heater replacement and roof repairs, even if you’ll go years before you need them.

Also, how are you planning to fund it initially? You’re not getting your mortgage until after the renovation is done, right? A couple of important considerations there:

1. If you get a regular mortgage with the intention of refinancing after the work is done, you probably cannot refi until the original loan has seasoned for 6 months. Check with your bank.
2. If you initially buy without a bank loan, you can refinance right after the work is done (google “delayed financing exception”). But… The amount of the loan will be limited to the purchase price ($95,500), not 80% of the appraised value.
3. If you don’t have cash to buy up front, consider alternative funding methods. This isn’t intro stuff, but since this is family, it’s much easier to work out. You can buy the property “subject to” the existing mortgage, meaning you take on the existing mortgage as it stands. And for the remainder of the purchase price, perhaps your in-laws would do work out a deal where you make additional monthly payments to them until you can refi, at which time you pay them the balance.

Think about a Home Equity Line of Credit (HELOC) also. A cash-out refi is a good idea if you will use all $50k. But if you aren't, or if you're using it short term and then recovering the cash, a HELOC is better. It's a line of credit, and you only pay for what you use. With a refi, you're taking on an extra $50k of debt, and paying interest whether you use it or not.With a LOC, the funds are always available, but cost you nothing when you're not using it. Like a credit card. Also, typically, your minimum payment is only interest, which is great for a fix & flip or a BRRRR, where you just need the funds for a few months and then will get it back.

@Francisco Gonzalez, @John Daniel, I've recently joined a great community of investors that have mastermind meetings multiple times a week on different topics and also daily meetings to analyze deals and get people moving. There's also superb education. If you DM me, I can tell you more. I've learned a ton in the 6 weeks since I joined and am partnering with other investors on several deals.

@Jason Robinson if you share the info here, I'm happy to help you evaluate it. I'm sure others will jump in too.

Is this listed on the MLS, or do you have an off-market opportunity? How much do you expect to pay? How much will renovation cost? Wild so some the work yourself? Have you determined the ARV (after repair value)? How much can you rent it for? Have you estimated all of your ongoing expenses? How much tenant turnover/vacancy would you anticipate?

How do you plan to finance it? Are you planning to refinance after the renovation's done?

All told how much cash will you leave in the deal? How does your anticipated annual net income compare to that?

How is your market and the neighborhood? Will you get good tenants? Will it appreciate?

With answers to those questions, analyzing the deal is relatively straightforward.

I wouldn't worry much about depreciation. Only invest in solid cash flow -- that way equity growth is just gravy... And you can wait out any downturn. Rents generally don't decline (except lightly in severe times), so good cash flow will only get better as you increase rents.

But I'd be careful about your analysis. What is your cash-on-cash ROI? That's what matters. Your income is rent minus all expenses (mortgage payment, utilities, repairs/maintenance, property management, adjustment for vacancy, etc.). Calculate that annually, and divide that by the cash you leave int he deal (down payment, closing costs, inspections, initial repairs). I'd be amazed if this turned out to be 19.7% in CT, in a place where values just appreciated 25%!

How does this method compare to your analysis?

I like the way you're thinking. I'm actually in the process of paying off a couple of low-balance mortgages and getting HELOCs. If you're doing short-term investments (where you'll get your cash back out), this is a terrific strategy. If you have the cash to pay off your mortgage, why pay the interest and be stuck with monthly payments, when a HELOC gives you access to the same funds anyway? And you'll pay FAR less in interest if you're only paying interest when the funds are in use. Also, while your funds are in use, you're only paying interest (on most HELOCs).

One thing... Terms are much better on a HELOC for your primary residence than for an investment property (much lower rates, higher LTV). So it makes sense to do it now, before you transition it to a vacation rental. But investigate whether this is legal. I love this approach financially, but I'm not an authority on whether it's legit.