All Forum Posts by: Geoff Garrett

 Jay,

Thank you for the catch!

Do you have an easily searchable resource that i can read up on this nuance?  Im starting to look into flips but and not well versed in them.

Geoff

 Awesome end goal!

If I am understanding you correctly you are looking to make a certain amount of money and minimize your hassle. (Looking to maximize the ROI on your time)

I get why the HELOC is attractive because you only pull out money and pay interest when you actually need it vs a Mortgage which you pull out the funds and pay interest on it whether or not you use the money.

If I understand most HELOC the bank can decide to stop your line of credit at anytime (obviously there will be some reason but it maybe out of your control like market winds change and they want to minimize risk and exposure). Also in time i believe that the bank can shift up the interest rate as rates rise as you borrow funds.

I know it is less than optimal to pull out the money in a mortgage and not be able to use it all at once but it will help protect you from interest rate rise as well from changing markets affecting the amount you can borrow.

With that being said it seems like you have some ways to invest that money in pretty near term.  

Also what difference does it make to you to either use HELOC money or money from a mortgage for flips?

On another note with your flips have you set up a 1031 intermediary for your profits to roll to your next flip? 

Correction on the above @Jay Hinrichs was knowledgeable and kind enough to point out that you are unable to do this.  (Guess ill be doing more homework to better understand flipping)

Good attention grabber with the "Dead Equity"

Geoff

What is your experience with real estate and building/contracting industry in general?

Is this your first project are you parlaying similar experience into real estate?

What connections/team do you have set up?

If this is your first go at real estate and you are looking to do a large new build there is alot of things stacked against you. 

I am all for people with BHAG (big hairy audacious goals) but if your numbers on paper don't work and people are pointing other things out that are needed i would recommend you look at other options.

To answer your question how they make money:  They can make money in several different ways depending on the X factor they have.  

Some developers own or partner with a construction company so all the work is done at cost.  On top of that a large company will have preferred pricing as well as not have a 10% (or more) mark up on all supplies ordered.  As well as have partnerships with design firms that keep design cost and know the most cost efficient designs.

Meanwhile the developer is typically bringing financial backing and possibly a good raw land cost.

So there are a lot of factors going into a development making money.  Even with all these factors going for a development there are a bunch of other tricky items that can sink the deal. One big one can be how long it takes to build and if the market has shifted by the time units are built.

Im not experienced in ground up developments but the comments above bring to light some very good points that i would heed. 

Also @joe owens above mentioned that he works with people more experienced than him. I think that is a great way to learn and help reduce your chances of getting into a bad deal.

Good Luck!

Mike,

I've been in this place and it is super demoralizing.

As much as this is a bummer and you may want to spend time and energy chasing this person down to attempt to get actual money from her.  The likelihood that you will ever see a dime is super small.

The best thing you can do is make sure to file the judgement with the county (or whichever area you need to) for the eviction as well as a judgement for the rent owed. I haven't seen anything come of the one I did. 

What this does is when this person goes to rent another place and their background is run these will pop up and the person looking to rent denies them.

I don't know if there is such a thing as a site that warns landlords of tenants.  

I think you are walking in the exact same steps that I walked missing all the signs I missed. The next thing I did after this was put in a solid vetting process. 

Must have references that are positive, employer that is positive (or verifiable consistent income), 1st last and security, and complete background and credit check.  If any of these fail you deny.  Even if it takes a couple more months to get a good tenant in it cost a lot less than a none paying tenant for several month, court fees and rehab fees.

If she cant pay 1st last and security right now she most likely isn't going to be able to come up with it after she gets in.  Guess what, once she is in its a long fight to get her out. Sometimes it can be tough to separate yourself from the situation. If you choose wrong you are effectively going to work or getting your income however to pay for another person to live in your place.  The kicker is that this person living there then makes you spend additional money to go through the legal process to get them out of the house that you are using to subsidize your living.

Hope this helps and let me know if you have more questions.

Geoff

Advantages of paying of the loan: you have a smaller debt on your balance sheet. You also pay less interest over the life of the loan

Disadvantages: You are locking up money in the property that you cannot easily access unless you refi or take a HELOC. Another thing to keep in mind is if you need to refi to get money out in a couple years in the future for your next down payment there is a big possibility you will be doing so at a higher interest rate.

If you pay more down you are not reducing what you are paying monthly just shortening the number of payments in 25-30 years.

It looks to me you are in a growth stage and having a stable predictable property with more debt (paying off at a regular rate). Then saving the extra money for an emergency fund as well as your next down payment is much more important.

Also when you go to get the second mortgage the bank is going to care more about you having reserves (more cash or assets that you can easily make liquid) than seeing you have paid down you mortgage some.  

(I super simplified this not taking into account reduced interest from accelerated pay down)

Example 1:

Mortgage 150k (paid down additional 50k) and 50k needed for next downpayment.

Monthly mortgage payment $1000 (not including taxes insurance etc)

Cash left after 2nd purchase $0

Example 2:

Mortgage 200k, 50K needed for downpayment, 50k in reserves

Monthly mortgage payment $1000 (not including taxes insurance etc)

Cash left after 2nd purchase $50k

Which example looks safer? Number 2 because you could lose your income and still be able to make payments for a long time. So a bank will be much more willing to lend to someone who is more liquid.

Also when you make additional payments it affects the payments at the end of your loan (last 5 years of the loan) Think in 25 years how much the rent will be expected to be by then.  I expect much higher than it is now.  So you are looking to spend more dollars on your property when you have the lowest cash flow to eliminate payments at a time when you should see the highest cash flow.

Let us know what you decide!

Geoff

Josh,

I might have missed it but what are your goals?

What do you intend to do with the money if you get it out?

What are the effects (to your specific situation) if you leave the money in "dead equity"

If your looking to grow your portfolio as quickly as possible refinancing out cash on owner occupied is the fastest way to do it.   

On the flip side of that what happens to your cash flows as you increase your monthly payment?  Also as you reduce your monthly cash flows on the properties you cash out what does that do for your ability to absorb unexpected expenses?

If you do decide to go with cash outs the longer you wait the more risk you have of interest rates rising more on you.

Personally I focus more on my operating cash flows and how refinancing affects that.  Also the other fun part is trying to figure out how much you can improve the cash flow if you use the cash out as down payments on other places. 

If you could elaborate more on what your goals are I think that would also help us to give more appropriate feedback!

Geoff

@Account Closed

I guess I am in a higher demand area as I usually get several qualified applicants (or I am not setting my rent as high as it could be).

I recommend you get feedback from others on this as well as run it by a lawyer familiar with the Landlord laws in your state. My thought would be to explain you have decided not to rent the unit at this time.  Just leave it at that.  Pull the listing and you can relist after a certain period of time. I would see what the lawyer recommends for relist.

It doesn't appear to me that you are discriminating due to a protected class so I don't see a reason why you couldn't back out.

Let us know how things work out

First off great to recognize the bad trait before they are in and your dealing with it for the length of the lease.

Also I could see both sides of this maybe he did have a bad time with the company and is completely justified in his comments.  But i prefer to find someone I don't have any reservations renting to.

As far as addressing the issue that you were working to get him moved in. As long as he doesn't have keys or a completely signed off lease you can tell them that you have decided to go with a more qualified tenant.  

Sounds like he is working all the offers on the table.  

Since he is using text messages its nothing binding but it helps him keep track of who has offered what.

My recommendation see if you can get a sit down meeting with him for coffee.  Take some time chatting (not about the house) just trying to establish a personal connection and see if you can get an agreement from there.

Id recommend bring a blank purchase contract that could be filled out there but dont push the seller into agreeing to something they are not comfortable with.  It really up to you if you'd want to get it signed.  

Also it seems like you have experience with this sort of thing.

Bottom line: in person meeting to try to establish a personal connection never hurts.

Good Luck and please post how it turns out.

I know you are looking to retire early through the use of real estate.  I guess the question I have for you would be are you looking to self manage or manage a real estate manager?

House hacking is a much more involved process to start out.  The nice thing about this is you are right there when problems arise and you learn real estate at the ground level.  Unfortunately things are on you to take the initiative and address things.  I have managed my own rentals and working with a local lawyer familiar with real estate management is a huge help to guide you in the right direction.

Investing at a distance is nice because you have a buffer between yourself and the tenants and someone (the management company) is holding your hand through the process.  The only thing is it makes it super important to select a great management company.  If things go bad its can be much harder than a house hack to show up to to see what is going on and work to fix it.

I recommend David Greene's book Long Distance Real Estate Investing.  He has a really good process for vetting and operating a team at a distance.  

Since you went with investing in ETF's rather than individual stocks I am going to go out on a limb and say you may want to "manage the manager". 

I would recommend that you go with what you go with what will make you most comfortable even if its not the most profitable first investment.  This might even mean buying a property locally and getting practice "managing the manager". 

The first deal shouldn't be about making the most money it should be about getting the experience and knowledge. From there you will be able to make better informed decision for your next investment.