All Forum Posts by: George Pauley

Your right it depends on many things.  But a minimal starting point would be comparing to other investments.  I can easily get 7-8% on places like PeerStreet and PatchOfLand.  If I can't get 7-8% out of property I'm better off just putting my money these investments.

I have many properties out of state.  It all hinges on finding the right property manager.  The property manager will be maintaining your properties and vetting new renters.  In addition, they should know what local areas are hot for renting and have good deals.  They know what local standards for rentals and rents are.  They should know who's selling properties in these areas, etc etc etc.  Of course finding the right property manager is very hard, but this is where you need to focus your energy.  Once you find them, the rest falls into place.

I found my tax guy at my local Real Estate Investors Association club meeting.  Las Vegas has a REIA (https://www.reialv.com/)  Go there and ask around.

A couple of thoughts.

First, the HELOC isn't permanent. The bank can cancel the line of credit at any time. So you could get the HELOC today, go looking for a house find one in 6 months, but the bank changed their mind and cancelled the HELOC at 5 months. Not likely, but possible. If you just refi the money is in your hands and the bank can't change their mind.

Second, comparing the HELOC to the refi seems complicated but it's really not. Presumably you have an idea of when you'll find the next property, and how long it will take you to BRRRR it. As such you can make a pretty good guess as to how much interest you will pay on the HELOC and how much you'll pay on the refi (including closing costs). At this point you know which is cheaper and can make a math based decision. Yes you are guessing on the HELOC and could be wrong. But you make the decision based on the best information you have at the time. And then move forward. Don't get paralyzed by over analysis. If the situation changes going forward you re-evaluate.

Being a bit more mathy about it. You are paying 4.1% on your mortgage. If you can make an investment that returns more than 4.1% you should make the investment rather than paying off your mortgage. (Do the math and the math will tell you what to do!) If you're hanging out in this forum, I suspect you will have no problem finding investments with greater than 4.1% ROI. :)

Allow me to go dark right away.  :)

We all know that we can be better versions of ourselves.  More fit, more wealthy, etc.  But to become better, we have to exert effort and make sacrifices.  Nothing rubs our noses in the fact that we're not making the effort and sacrifices more than having a colleague succeed.  To wit, most of us don't want to see our friends and family succeed.  At least not significantly more than we have.

On a lighter note, when you do succeed, you'll discover you have many more friends and family than you realized, all with their hands out.  I don't discuss my real estate holdings with most of my friends and family.  I think this lack of disclosure has only strengthened my relationships.  ;)

In general I steer clear of properties that don't cash flow.  I mean I make more by burying the money in the back yard!  ;)

I also don't like the idea of making a bigger down payment to make the property cash-flow. But that statement is a gross over-simplification. Most investors know about Return-On-Investment, basically cost of investment divided by return on investment. We use ROI to help us determine which investments to make. If investment A has an ROI of 10% and investment B has 5%, we should lean towards investment A.

We almost always have to put money into the down-payment, or renovations, to make the property cash flow.  And that's OK.  But understand that equity in the property (ie the down payment and renovations we make, and appreciation) is money that could be invested elsewhere.  To wit, we can calculate the Return-On-Equity of the property, the equity divided by the return, similar to ROI.  If ROE on a property is lower than the ROI on some other investment then we need to find a way to get that equity out of the property and into the other investment.  Make sense?

So now, you are pondering making a larger down payment to make a property cash flow.  Just remember that this down-payment is effectively equity in the property.  You can calculate ROE and ROI on several different down payment sizes to figure out the "best" down payment size. 

Each property, and each investor, will likely have different results.  If you don't care about cash flow, you'll generally want to make as low a down payment as you can and not lose money.  Heck you might even be willing to lose money if total ROI is high enough and you can afford it.

I can usually get 7-8% out of hard money lending.  If I can't figure out how to get at least that out of a property, I move on.

I like zerohedge but... Never attribute to malice that which can be attributed to incompetence.  

I think the way to approach these types of questions is to look at return-on-equity (ROE).  Everyone is familiar with return-on-investment (ROI), it's just cash-returned divided by cash-invested.  ROE is similar, just divide by the equity in the property instead of the cash-invested.

Calculate ROE on your current property.  Then calculate (estimated) ROI on the new property.  If ROI > ROE then you should refinance.  One way of looking at this situation is that if ROI(new) > ROE(old) then the equity sitting in the old property is making you less return than it would if it were invested in the new property.  Make sense?

I'm seeing markets tighten up everywhere.  Memphis has always been a go-to location for me, but it's getting hard to find good deals there.  Damn investors are flooding all the good (easy) markets.  Still, I'd definitely check out the Memphis Market.

Also, in terms of when to buy on the dip, it occurred to me that historical data might offer some clues.  Look at market prices plotted against time for various markets to see how much they have dipped in previous bubble busts to get an idea of how far prices might drop.  Also look at non bubble bust dips to get an idea of what random fluctuations look like in a given market.

Of course... Past performance is not indicative of future results.  ;)