All Forum Posts by: KC Pake

Hello BiggerPockets,

I'd like to open a discussion on an unconventional approach to real estate investment: utilizing unsecured term loans instead of the traditional route of mortgages. This strategy might sound unorthodox, but under the right circumstances, it could offer several unique advantages.

1. Speed and Flexibility: One of the foremost benefits of using unsecured loans is the speed of processing and disbursement. Unlike mortgages, which often involve lengthy approval processes and property inspections, unsecured loans can be obtained relatively quickly. This rapid access to funds can be crucial in real estate markets where opportunities come and go extremely fast.

2. No Collateral Requirement: Unsecured loans, as the name suggests, do not require collateral. This is particularly advantageous for investors who might not have sufficient equity in their existing properties or prefer not to tie up their assets. It offers a layer of protection for your primary residence or other properties in your portfolio.

3. Diversification of Investment Portfolio: Leveraging unsecured loans for real estate investments can be a strategic way to diversify your investment portfolio. It allows investors to spread their assets across different types of investments, which can mitigate risks associated with market volatility.

4. Potential for Higher Returns: While unsecured loans typically come with higher interest rates, the potential for higher returns in real estate can help offset this cost. If the property's value appreciates at a rate higher than the loan's interest, the investment can yield significant profits.

5. No Property-Specific Restrictions: Mortgages often come with various stipulations regarding the property type and condition. With unsecured loans, investors have the freedom to invest in a wider range of properties, including those that may not qualify for traditional financing.

Caveats to Consider: While the benefits are noteworthy, it's crucial to approach this method with caution. The higher interest rates on unsecured loans mean higher monthly payments, which could strain your cash flow if the investment doesn't generate expected returns. Also, the lack of collateral increases the lender's risk, which is reflected in the interest rate and terms of the loan.

In conclusion, while traditional mortgages are a common route for real estate investments, unsecured term loans can offer an alternative for some investors on certain properties. This approach is best suited for experienced investors with a strong understanding of the real estate market and a well-thought-out investment strategy. As always, it's recommended to consult with a financial advisor to understand the risks and ensure that this approach aligns with your overall financial goals.

Looking forward to hearing your thoughts and experiences on this topic!

Best regards,
KC

Quote from @Shaun Mcdonald:

Hi all,

New to the forum and have been doing plenty of reading through other threads, but have a bit of a unique situation I'd like to get some takes on.

My wife and I currently own a house worth about $750k with a remaining mortgage of $240k. We're looking to buy our first STR and we're thinking about a HELOC or home equity loan to help with the purchase price of the STR, as we only have about $15k saved for a down payment and while we're working on saving more, don't want to wait forever to dive in, as we've already passed up on a few great deals because we don't have the cash saved for a proper down payment.

Is it silly to consider taking a HELOC to help with the downpayment and initial improvements of our first STR? We have great credit (800+) and pretty strong income, we could almost take on the second mortgage without having to actually rent the STR, but we would need to adjust our current spending habits.

The STRs we're looking at are in the $275k - 350k price point fwiw.

Open to any/all advice or tips. Thanks in advance!

Hi Shaun and welcome to the forum!

It's great that you're doing your research and seeking advice for your specific situation. Using a Home Equity Line of Credit (HELOC) or home equity loan for purchasing a Short-Term Rental (STR) property is indeed a strategy that some investors use, but it comes with both advantages and risks.

Advantages of Using HELOC for STR Investment:

Leverage Equity: You can leverage the equity in your current home to finance your investment without having to sell your primary residence.

Lower Interest Rates: Typically, HELOCs have lower interest rates compared to other loan types, making them an attractive option for financing.

Flexibility: A HELOC offers flexibility in terms of borrowing and repayment, which can be beneficial depending on your financial situation.
Risks and Considerations:

Risk to Primary Residence: Since your home is used as collateral, if you're unable to make payments, there is a risk of losing your primary residence.

Variable Interest Rates: HELOCs often have variable interest rates, which means your payment amounts could increase over time.

Market Volatility: The real estate and rental markets can be unpredictable. Relying on rental income to pay off the loan can be risky if the market turns or if the property isn't rented as expected.

Additional Expenses: Owning a STR involves more than just the mortgage; consider maintenance, repairs, management fees, insurance, and potential periods without rental income.

Given your strong credit score and income, you're likely to get favorable terms on a HELOC. However, it's crucial to thoroughly assess your ability to manage the additional financial burden. Since you mentioned the possibility of adjusting your spending habits to take on a second mortgage, it's a good sign of financial awareness.

You might also consider unsecured term loans instead of a HELOC.  With solid credit and income, you have several options.

Best of luck with your investment decision!
KC

Quote from @Anthony Pantoja:

Hello everyone! 

I'm interested in obtaining a HELOC for one of my investment apartments. I've done some research and there aren't many lenders offering HELOC for investment properties. TD Bank is one of the few that does. I was wondering if there are any other lenders out there that do? I called my local banks as well some credit unions but they unfortunately only offer for primary and secondary homes.

Hi Anthony,

Finding a Home Equity Line of Credit (HELOC) for an investment property can be more challenging, but there are several lenders you might consider. While TD Bank is a known option, other national banks like Wells Fargo and Bank of America may occasionally offer similar products, although their policies could vary. It's also beneficial to explore regional or community credit unions in your area, as they might have unique offerings tailored to local investment needs.  Your local banks will likely have more strict underwriting rules than credit unions.

Online mortgage lenders are increasingly flexible and might provide HELOCs for investment properties. Companies like Quicken Loans or Rocket Mortgage have been known for their diverse lending options, and they might work around your requirements. Additionally, consulting with a mortgage broker could open up more avenues. Brokers have access to a wide range of lenders and can often find specialized products that align with your needs.

Remember, lending policies and products can change, so keeping an eye on the market and regularly reviewing your options is advisable. Ensure you thoroughly understand the terms and conditions of any HELOC you consider, as investment properties often have many different requirements than primary residences.

Don't forget to look at other funding options and compare them against a HELOC.  Depending on the amount you need to borrow, unsecured term loans might be something to consider.

All the best, 
KC

In recent years, real estate investment has become a tantalizing option for many aspiring investors. The allure of potential high returns, asset appreciation, and the tangible nature of property investment make it an attractive endeavor. However, as many seasoned investors would agree, having a solid exit strategy is as crucial as the initial investment decision. This blog post aims to highlight the importance of planning your exit strategy in real estate investment.

The Thrill of the Investment

The journey into real estate investing often begins with excitement. You find a property, envision its potential, and get captivated by the prospects of rental income or capital gains. Whether it's flipping houses, owning rental properties, or investing in commercial real estate, the opportunities seem endless. However, the thrill of acquiring property can sometimes overshadow the critical aspect of exit planning.

Why is an Exit Strategy Important?

1. Market Volatility: Real estate markets are dynamic and can change due to various factors like economic shifts, interest rates, and market saturation. An exit strategy helps you navigate these changes effectively.
2. Cash Flow Management: Real estate investments can tie up significant amounts of capital. A well-planned exit strategy ensures liquidity and the ability to free up cash when needed.
3. Risk Mitigation: Real estate investments come with risks, including market downturns, property devaluation, and unexpected maintenance costs. An exit strategy helps mitigate these risks.
4. Maximizing Profits: Knowing when and how to exit can be the difference between a profitable investment and a mediocre one. Timing your exit to coincide with market peaks can maximize your returns.

Types of Exit Strategies in Real Estate

1. Selling: The most straightforward strategy is to sell the property. This can be done after increasing its value through renovations or waiting for market appreciation.
2. Renting: Holding the property and renting it out can provide a steady income stream. This strategy works well in markets with high rental demand.
3. Lease Options: This involves leasing the property with an option for the tenant to buy at a predetermined price. It's a way to secure a future buyer while earning rental income.
4. Refinancing: By refinancing, you can take out equity and reinvest it, while still owning the property.
5. 1031 Exchange: In the U.S., a 1031 exchange allows you to defer capital gains tax by reinvesting the proceeds from a sale into a new property.

Planning Your Exit

1. Understand the Market: Continuously monitor market trends and economic indicators to make informed decisions.
2. Set Clear Objectives: Define your investment goals and timeline. Are you looking for short-term gains or long-term income?
3. Consult with Professionals: Real estate agents, financial advisors, and tax experts can provide valuable insights into the best exit strategies for your situation.
4. Be Flexible: Be prepared to adapt your strategy as market conditions change.

Conclusion

While the entry point into real estate investment is often emphasized, the exit should never be an afterthought. A well-planned exit strategy is a key component of successful real estate investing. It ensures that you can adapt to market changes, manage risks effectively, and ultimately achieve your investment goals. Remember, in the world of real estate, how you exit is just as important as how you enter.

Quote from @Brian Harris:

Hi everyone,

My wife and I have been wanting to buy a place in NC for STR / personal use a couple times a year to visit my family. We saw an off-market listing on Facebook in a local market type of group. 2 red flags right there, but wanted to see how people would deal with this. My mom spoke with the guy (she lives near there, I'm on the other side of the USA) and was going to meet with him tomorrow. He claims he's selling for his friend who has medical issues. This feels like a major scam, but is a super nice looking property so I'm torn. Of course I told her don't give him any money, we'll find a way to verify that this person can sell the property.

Sketch scam or protect ourselves and find out?

Thanks so much, I am new to all this and don't want to waste time or money.

Hi Brian,

It's great that you're being cautious with this potential property purchase in NC. Buying real estate, especially off-market deals, requires careful consideration to avoid scams. Here are some steps you can take to protect yourselves:

Verification of Ownership: Ensure that the person selling the property is the legitimate owner or has the legal authority to sell it. This can be verified by checking property records at the local county office or through a title company.

Professional Assistance: Consider hiring a real estate attorney or an agent who specializes in off-market transactions. They can help navigate the process, verify the legitimacy of the deal, and handle legal aspects.

Inspection and Appraisal: Before making any decisions, have the property professionally inspected and appraised. This not only verifies its condition but also ensures you're paying a fair price.

Escrow Services: Use a reputable escrow service for any financial transactions. This adds a layer of security, as funds are only released when all terms of the transaction are met.

Meet in Person: Since your mother is nearby, it's good that she can meet the seller. However, ensure it's in a public place and she's not alone. Personal safety is paramount.

No Rush Decisions: Scammers often try to rush decisions. Take your time, do thorough research, and don't let anyone pressure you into making quick decisions.

Background Checks: Do some background checks on the seller or the person acting on behalf of the seller. Simple online searches can sometimes reveal useful information.

Documentation: Ensure all agreements and claims are documented. Verbal agreements should be taken with caution.

Remember, if something feels off, it's better to err on the side of caution. Real estate scams can be sophisticated, and it's wise to approach such deals with a healthy dose of skepticism.

Best of luck with your property search!
KC

Quote from @Marko Liberty:

Hi there biggerpockets community!

first post incoming :) 

I will start this year with househacking(renting one apartment in my house) and i plan on buying another house for short-term renting by the end of the year. 

So my question for the further future, there is a friend of mine who wants to invest in real estate, he will give all the money. Me on the otherhand, will find the land, build some smaller houses for short-term renting, organise everything and do all the work and rent it at the end. We will split the profit 50/50, but how we are going to split the ownership of the property? Will he be the owner? How long do we keep splitting the profit? Will we both own the land, like 50/50? What are the usual methods in such cases. 

I have listened to the bigger pocket podcast and heard about buying with investors, keeping the property, renting it and splitting the profit but iam not sure how to handle the ownership.

Yes i did search the forum but i couldn't find anything, if there is something pleas send me a link.

thank you and wish me luck.

ps iam living in Europe (Croatia), couldn't find anything similar to bigger pockets here.

Marko

Hello Marko, and welcome to the BiggerPockets community!

It's great to hear about your plans for house hacking and expanding into short-term rentals. Partnering with a friend for a real estate investment can be a rewarding venture, but it's crucial to have clear terms from the start, especially regarding ownership and profit sharing.

When it comes to splitting ownership in real estate investments, there are several approaches you can consider:

Joint Ownership: This is where both parties own a portion of the property. In your case, it could be a 50/50 split. This means both of you would be on the property title and share responsibilities and profits accordingly.

Limited Partnership or LLC: You might form a limited partnership or a Limited Liability Company (LLC) where your friend contributes the capital (as a silent partner) and you handle the operations and management. The ownership shares and profit distribution can be outlined in the partnership agreement or LLC operating agreement.

Debt-Equity Hybrid: Your friend could lend you the money to buy and develop the property, with the agreement that he receives a percentage of the profits in addition to repayment of the loan. This way, you own the property, but your friend has a financial interest in its success.

Contractual Agreement: A clear contract can be drafted to outline the specifics of your arrangement, including how profits are split, the duration of the agreement, and what happens if one party wants to exit the investment.

It's essential to consider how long the profit-splitting arrangement will last. Will it be indefinite, or will there be a buy-out clause after a certain period? These details should be explicitly mentioned in any legal agreement you draft.

Since real estate laws and practices can vary significantly, especially in Croatia, I recommend consulting with a local real estate attorney or a legal expert. They can help you understand the legal implications and assist in drafting a contract that protects both parties' interests.

Lastly, for finding resources similar to BiggerPockets in Croatia, you might want to look into local real estate investment groups or online communities where you can connect with fellow investors and get insights specific to your region.

Good luck with your real estate ventures, Marko! Remember, clear communication and legal advice are key to a successful partnership.

Quote from @Christian Rafael Gongora:

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $245,000
Cash invested: $15,000

Contributors:
Keith Andrews

My 2nd Purchase while using a VA assumable loan

What made you interested in investing in this type of deal?

I wanted to find a 2nd property to invest in that will cash flow for the rest of my life but without putting a big down payment for it

How did you find this deal and how did you negotiate it?

Keith Andrews found this deal for me in San Antonio Texas while living all the way in Colorado Springs!

How did you finance this deal?

VA Assumable Loan

What was the outcome?

While the listed price of the house was $245,000… I was able to purchase this future CASH COW of a property with only 15k cash to close! This deal would have normally been a 20% down payment of 245k which is $49,000…. But since I used the VA assumable loan, I was able to purchase a quarter million dollar property with just 6% down. Not to mention, I assumed a 3.25% interest rate from this house as well! All real estate investors know that we most likely will never see interest rates in the 3s!

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

For anybody living in the Colorado Springs area, Keith Andrews is and should be your only guy to work with! He introduced me to this property in San Antonio Texas while living all the way in Colorado Springs! If that doesn’t tell you how GOOD he is at finding these properties for you… I don’t know what will. He is and should be the only agent that you want to work with if you live in the Colorado Springs area!

Awesome find, Christian!

Very smart investment, and a great move on the VA assumption with a low rate.  

Thank you for your service,
KC

Quote from @Jack Phillips:

So I have a hypothetical situation:

Lets say a properties ARV is $550k,

Repairs are $75k,

And Wholesale Fee is $10k.

Using the mao formula:

$550,000*80%-Repairs-Wholesale Fee = MAO of $355k

When I am making my offer price to the homeowner, how do I include any liens, mortgages, and/or money owed? Do I subtract the the offer price ($355k) by the total amount of money they owe? Or is that not my job and I offer the full $335k to the homeowner, find cash buyer to buy the property, and the cash buyer and title company deal with all that.

Please help, thank you

Hi Jack!

When considering the purchase of a property in a real estate wholesale transaction, it's important to understand how to factor in liens, mortgages, and money owed on the property. Your hypothetical situation provides a good basis for discussion.

Understanding Liens, Mortgages, and Debts: These are obligations attached to the property and must be satisfied at the time of sale. Liens and mortgages are secured against the property, meaning if the property is sold, these debts must be paid off with the proceeds from the sale.

Making an Offer: When you calculate your Maximum Allowable Offer (MAO) using the formula you've provided, you're determining the most you can pay for the property to ensure a profitable deal for yourself and a potential cash buyer. Your calculation does not inherently account for liens, mortgages, or debts.

Offer Price and Debts: Generally, the offer you make to the homeowner is based on the property's value and the cost to repair, not directly on the homeowner's debts. However, the homeowner's net proceeds from the sale will be the sale price minus any outstanding liens or mortgages. In some cases, if the total debts on the property exceed your offer price, the sale might not be feasible unless the homeowner can bring money to the closing or a short sale is negotiated with the lenders.

Your Role in Dealing with Debts: As a wholesaler, it's not typically your responsibility to pay off the homeowner's debts. Your role is to agree on a purchase price with the homeowner and then assign the contract to a cash buyer. The cash buyer, in coordination with a title company, will handle the payment of any outstanding liens or mortgages at closing. The title company will ensure that these debts are paid from the sale proceeds before disbursing any remaining funds to the seller.

Considerations for Your Offer: If you become aware of substantial liens or mortgages, you might need to consider these in your negotiations. Sometimes, knowing the total debts can help in structuring a deal that is feasible for all parties. However, your primary focus should be on the property's value, repair costs, and your desired profit margin.

Title Search and Due Diligence: Before finalizing any deal, a title search is essential to uncover any liens or mortgages. This is typically conducted by the title company or a lawyer and will give you a clear picture of any encumbrances on the property.

Communication with the Homeowner: It's important to have transparent conversations with the homeowner about liens and mortgages. While it's not your job to pay these off, understanding the homeowner's situation can aid in negotiations and in ensuring the deal is viable.

In summary, when making your offer, focus on the property's value and your calculated MAO. Be aware of any liens or mortgages, as they will affect the homeowner's net proceeds, but these debts are typically resolved at closing with the involvement of a title company and the cash buyer. Your role is to negotiate a deal that makes sense for you and to find a cash buyer who will ultimately take over the contract and deal with the financial intricacies of the property purchase.

Good Luck with your negotiations!
KC

Quote from @Isaiah Cortez:

Hey BP community!

New investor here. I'm diving into the multi-family real estate game in Florida and could use some guidance.  

I'm looking to make strategic investments in multi-family homes in Florida, particularly in St. Augustine or Vero Beach. My ideal property would be in the range of $500,000, offering 3-4 units to maximize the investment potential. Any tips on the current market and what to watch out for in these areas? 

If any of you have experiences or insights into these regions, I'd love to hear your thoughts.

Please drop a comment below or connect with me. Excited to learn from your experiences!

Hi Isaiah,

Focusing on the St. Augustine area in Florida for your multi-family real estate investment is an intriguing choice, given its unique market dynamics. St. Augustine, known for its rich history and appealing lifestyle, has seen a consistent demand in the housing market. However, it's essential to consider some specifics of this region. The city, with its charming historic districts and proximity to beaches, attracts a diverse demographic, which can be advantageous for rental demand. When looking into properties, pay close attention to areas near tourist attractions, as these tend to have higher rental yields. However, be aware of the unusually high insurance costs in Florida, exacerbated in recent years by climate-related events. This factor significantly affects the overall investment cost and potential profitability, especially in coastal areas like St. Augustine which might be more prone to weather impacts.

Additionally, make sure to research local regulations and community developments, as St. Augustine has a mix of historical and newer properties, each with different maintenance needs and regulatory considerations. This thorough local market analysis, combined with an understanding of the higher insurance landscape in Florida, will be crucial in making a strategic investment decision in St. Augustine. 

All the best,
KC

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