All Forum Posts by: Kyle Josefiak

Thanks a lot JD! This was super helpful!

Do you happen to have one or two favorite resources for learning more about cost segregation analysis? Would love to learn more and try to apply it to my personal home like you said.

And you hit my question right on with the "opportunity risk" holding too much cash. That's pretty much exactly what I was thinking about when I questioned having too many different buckets of cash that I slowly add to. I think your recommendation for an all encompassing 6-8 month emergency fund for everything, including the one or two potential unforeseen large home repairs.

Really appreciate the feedback!

This might be a dumb question, but the thought occurred to me the other day... obviously when investing in a rental property you factor in expenses like CapEx, Repairs, Vacancy, Prop Management and others. Being someone who has always compartmentalize my finances I was wondering if it was smart to pretend I was my own renter and pay myself monthly into a reserve, mainly the CapEx and Repairs percentage that I would apply to an investment property. That way when the time came to spend money on my PR I would hopefully have most, if not all, of the funds already set aside.

I'll mention, my wife and I plan to live in our home for the next 8-10 years and start our family here. There aren't any major things on the house that will need attention, at least in the next ~5 years. I'll also mention my financial planning thus far has set me down the path of having an emergency fund (~6 months expenses), vehicle repair fund, vacation fund and even general savings fund, all of which a portion of my biweekly paychecks direct deposit into.

This probably all comes down to personal preference but I guess my main question is this. Does it make sense to set aside cash monthly into all of these different savings funds, including a PR reserve, to account for future expenses, or is that capital better used elsewhere?

I guess I'm just looking to learn of other people's strategies for financial planning.

@Victor S. really appreciate the advice. You're correct in assuming when I did my refi last year it was just for the remaining balance on my first loan, no cash out. Also, your logic makes perfect sense on why to go the HELOC route vs. a refi. As you mentioned since I don't really have a solid plan just yet for my real estate investment, but definitely have plans to renovate my own kitchen/bath in the near future, doing a cash out refinance doesn't make much sense only to have most of it sit in a bank account. Not to mention the fees involved in a refi. Regardless, I'm still definitely going to get in touch with a relator to get their opinion on the overall value of my home both current and ARV. Now taking it a step further I also think Perry makes some great points as well.

@Perry Farella, you've been amazing and I also can't thank you enough for your continued advice. It really shows through your thorough posts that you have my, and my families, best interest in mind with your suggestions. Seeing as I've always been fairly conservative with my money and have been a great saver thus far, I shouldn't all of a sudden change that strategy just to get into real estate investing faster. Which is why I completely understand your logic as to why I wouldn't want to risk adding additional leveraging to my primary residence, especially considering how soon it could be paid off allowing me to save even more every month down the road. BUT David and Brandon aren't helping me stick to that mentality, as just today on another older podcast David said, more or less, if you're in it for the long haul (real estate investing) there is no reason why you wouldn't make the most out of every last cent of equity you have, putting it to work investing more ultimately giving you a higher ROI than just leaving it sitting in the property itself. There are of course a ton of factors, and maybe he would say the exception to that rule would be if it were your primary residence, but still something I'm having trouble wrapping my head around.

Outside of my internal tug of war, if I go back to thinking conservatively, it seems as I've got a pretty clear idea of what I need to do with one or two decent choices, without of course bringing in other alternate options like private/hard lending which hasn't even been part of this conversations thus far so I'll leave that out of this thought process.

1) Stick to my original path of paying my current mortgage off on my primary residence, use our savings to renovate the kitchen/bathroom, then simultaneously keep a look out for a great deal to put my remaining savings towards a 15% down payment on a HomeStyle loan and proceed as I had envisioned. Fixing up a property, renting it out, then cash out refinancing that property to hopefully provide enough to repeat (BRRRR). This plan of course requiring me to use a decent chunk of my own savings but ultimately allowing me to pay my own house off quickly while also starting my real estate investing journey.

2) Basically the same as number one, only potentially I use a HELOC to cover the 15% down payment on my investment property. This would allow me to only take advantage of a small amount of equity in my primary, avoid using my own savings, apply only a minimal amount of additional leverage on my primary residence, and then down the road use the cash out refinance from my investment property to pay off the HELOC. Thoughts?

I guess with option two I'm still struggling to wrap my head around the math of my long term ROI between using strictly my current savings verse a HELOC to fund my investment property. At the end of the day I guess the personal savings is still the smarter move, as I'll be paying interest on the HELOC over the time it's not paid off. But then when I cash out refinance the investment property down the road I could factor in paying myself back that interest making it even overall? I guess there is no one perfect path? Or would you still 100% go the no leverage route and just use personal savings on the HomeStyle, as long as I also have some reserves as you also mentioned?

So close to fully grasping the most optimal route for my own personal situation.

@Perry Farella I agree it's probably wise to approach my two different goals separately. It's just so tempting to try and work out a strategy that would result in accomplishing both while avoiding the use of my own cash/savings on a rehab that wont give me an immediate ROI that I can go and reinvest. I can answer a few of your questions to maybe help lead to the single most optimal choice, if there even is one, if you don't mind continuing this conversation with me! Totally understand if you're ready to move on.

Definitely going to take Victor's advice in getting a realtor involved to help me determine if the remodel work will increase my appraisal any higher than my previous $190k, but honestly even if it stayed the same I'm still in a pretty great place sinking money into it given the great deal I got when I bought it ($102k and owe $70K). So the dollar for dollar value should definitely be there. I have no interest in ever renting out our spare bedroom(s) as we plan to start a family in the next year and with that being said we also love the house and plan to grow our family in it for at least another 8-10 years before upgrading to a larger house. So, if following your suggestion and not adding more debt to our personal residence, the house would be paid off around the same time we want to purchase our next home. 

I guess my continued question, given I don't plan on moving anytime soon nor am I overly concerned about losing my job and not being able to cover a potential new higher mortgage payment, is would doing a cash out refinance allow me best accomplish both my goals of rehabbing/investing without using my own money? It's just so tempting to imagine having this big lump of cash from a refi to be able to use on my own house AND also buy/rehab a property for rent, without having to tap into a cent of my own money. But of course I'd be paying more every month on my own house so I'm sure that factor should be considered for the long haul. Way I see it my P&I is currently $550, 15 month mortgage. Refi would give me ~$80k in cash, $150k total new mortgage, but up my P&I to $750, 30 month mortgage. So ~$200 more a month, or $2,400 a year, that I'd be paying for this whole scenario overall. Which if I'm able to produce a rental property that generates $200 or more in cashflow then in theory it would be a wash, right? And I would have accomplished my goal of rehabbing my personal residence AND acquiring my first investment property without using any cash up front? Then I'd do it all over again with another refi then BRRRR. Outside of your concern about adding leverage against my primary residence does that all add up and make sense to you?

@Victor S. you bring up a great point about the timing of a refi on my current home. But I think the reason I didn't consider that path is because when I got my refi appraisal last year at $190k I was pretty shocked. That value was always what I was told, by several sources, that my house would be worth AFTER a brand new kitchen and bathroom were done. So I have a hard time thinking it would appraise for much more than that after the reno. If that ended up being the case, appraisal being roughly the same with or without the new kitchen/bathroom, I don't think using a HELOC would make much sense for my improvements because as I mentioned earlier I have a good amount of savings that should easily cover any rehab costs. So if I were to use a loan instead I'd be paying more for the job, unnecessarily, with the interest from the HELOC only to not gain any more value out of the refi. But maybe I'm thinking about it wrong? Also, why the 30 verse the 15? Just lower monthly payment allowing for more liquid cash to work with elsewhere?

Thanks so much to both of you! Totally understand if you drop this chain and move on to other things. But if you're able to stick with me I'd really appreciate it.

@Perry Farella

@Jerry Padilla, really appreciate the super thorough response!

So yeah, in my scenario if my house still appraises for $190k I would be able to refinance for roughly $150k, or $80k in cash for personal kitchen/bathroom and future investment. The rough idea would be to use about $25k-$30k on my own kitchen/bathroom and then have $50k-$55k for an investment down payment but also rehab. As you mentioned, I definitely would be interested in buying a moderate to even major fixer upper SFR for cheap and fix it up new to then rent out, and then refinance to repeat the process. As @Perry Farella detailed earlier, the HomeStyle loan sounds very interesting as you can get it with a lower down payment (15%) but also can incorporate rehab cost. Still need to learn all the details on how that actually works.

Curious on your suggestion to purchase the investment property in all cash, if possible. Is that simply to avoid having a second mortgage and greater cashflow once rented? I currently have a decent amount of savings but it might be tough to buy a house in cash with that savings plus the cash out amount and still have money to play with for rehab. But I guess I don't know that for sure as the whole real estate investment game is about finding great deals, running numbers and making a smart calculated decision based on what you have to work with. Which with your suggestion would be me finding a property that the purchase and rehab cost equaled what cash I would have on hand from both my savings and refinance.

One last question if you don't mind. I was listening to an older podcast today and @David Greene answered a forum question around the use cases for HELOC verse refinancing. Thought I had a decent understanding of the difference between the two but he mentioned refinancing involved $10k-$15k in fees. I didn't realize they were that high and honestly when I refinanced to get a lower rate last year I only remember having like $2k-$3k in fees incorporated into my new loan. I guess my last question is around a HELOC and whether or not that would be another viable option for my situation. My initial thought is no, because as I understand it HELOC should be used if you plan to pay it off in full in a relatively short period of time. This might be fine if I were only looking to invest those funds into a new property/rehab then refinance to pay off the HELOC, but if I were to use any of those funds on my own kitchen/bathroom I'm not getting any immediate return out of that part of the plan, except an incredibly happy wife. I guess I could potentially build enough equity in my new investment property to cover my own home renovation with enough cash to spare for my next investment, but ultimately by me using any HELOC money for personal improvement I'd only be taking away from my future investment cash I'd be wanting to use for reinvesting.

What do you think? Am I overthinking this?

@Michael Ealy, totally on board with reserves. Actually, even before moving forward with any of this potential property investing, I have built up an "emergency fund" that plays the roll of buffering my current situation with my current house/expenses and then some. So in theory I would probably only need to add slightly more to that pot to cover any potential hardships down the road incorporating a new investment property as well.

Really appreciate your perspective and advice. If you wouldn't mind, I'm responding to Jerry separately and I'd be curious of your continued opinion if you have anything to add.

@Perry Farella, thanks for all of this! Really appreciate the alternate idea and I'll definitely be checking out your blog to learn more about that option.

Quick question, when you said the advantage is the house is appraised to future ARV, not what you pay for it today. So for a HomeStyle conventional loan, the bank appraises the property you're looking to buy based on what they believe the ARV will be? If so, that then determines what they'll lend you? So if I find a house that would accept $100k but needs work, the bank would appraise that property based on what they believe the ARV would be and give me a loan for that amount? This might be all outlined on your blog so I'll have to check that out but if you have a quick answer or general example of what that would look like with easy fake numbers that would be awesome.

Taking your additional option into consideration I'm hoping you can humor me for a few more minutes while I think out loud.

I totally understand your reasoning for why I would want to go the HomeStyle route verses adding a large amount of new dept to my current, main, residence. I.E. - greater risk if I lost my job. Super quick background on me, I'm a 30 year old saver with a decent emergency fund so I wouldn't be super concerned with that specific risk. However, correct me if I'm wrong but, going this route probably isn't the way to accomplish both of my goals, somewhat, simultaneously right? With a HomeStyle loan I'll be allocating, most likely, personal savings towards a 15% down payment strictly for a new property to fix up and rent for (hopefully) great cashflow in 6-12 months. That's all well and good but then at the end of the day I wouldn't have the funds to rehab my own kitchen/bathroom this route, correct? I'm assuming I could refinance the HomeStyle loan down the road pulling equity out of my new property? But if I did that I would ultimately want to reinvest that money into another new property and BRRRR. At least that's how I understand your HomeStyle loan route would go.

I understand I might be trying to do too much all at once and need to prioritize. It's just that I have a new wife who I've been promising a new kitchen too for a while now and I'm trying to create a solution that potentially solves for both personal renovations and a new property acquisition/rehab all in one fairly smooth swoop. Again please correct me if I'm wrong and the HomeStyle loan route could actually pull this off. But if I could potentially get $75k out of a cash out refinance mortgage from my primary residence, and you don't think that is overly risky for reasons other than potentially losing my job, that would give me about $25k for my own kitchen/bathroom and the remaining $50k to buy and fix up a completely different house.

Am I thinking about all of this in the right way? Thanks so much for your time helping me brainstorm this!

Thanks @Mark Navarrete. Even with a rate ~4.5% that shouldn't really matter too much given the bigger, optimal, picture of using the money to purchase additional property and produce cashflow and/or profit.

Do you have any opinion on why I'd go the refi route rather than just pay off my current loan and find personal/private funding to cover my rehab and future first investment property?

@Michael Ealy thanks for the reply! Not sure how much longer the wife can wait on the new kitchen. Been promising it for awhile haha

As for the equity, would you max out what's available? So if my house still appraised for $190k, and the bank is willing to lend 80%, I'd refi for the full ~$150k? Or should I build it a buffer in case the market slows down? Or, and this might be a dumb question, is that what the bank is already doing only loaning 80% of the current value? Building in that padding?

Hey there!

Hoping my lack of BP activity doesn't turn people away from my question. Been gaining experience/knowledge about real estate investing and rehabbing through first hand experience the past five years with my own house but really itching to finally step outside my comfort zone and make my first deal. What makes my situation somewhat unique is I'm trying to kill two birds with one stone and make renovations to my current house while also gaining financing to make my first deal. Based on everything I've learned the past several years I'm thinking it makes a lot of sense but would love some BP forum feedback.

Going to keep this as condensed as possible because nobody likes to read a novel.

Bought my first starter home five years ago for $102k with 20% down. Owe $70k on it and refinanced a little over a year ago to change from a 30 to 15 year loan. During refinance my appraisal came in at $190k and that was even before remodeling my kitchen and bathroom, which is one of the birds I'm trying to take down with this strategy.

Goal/Bird #1: Been wanting to remodel the kitchen and bathroom for a while but just got married last year and that took priority. Now this year it's definitely going to happen and the original plan was to use most of our wedding gifts to cover the cost.

Goal/Bird #2: Been super motivated and pumped up this past year to make my first investment and feeing confident in the knowledge/info I've gained over the past several years. I've practiced analyzing over 100 deals and studied the market I want to focus on. To accomplish this I had originally thought I'd go the private lending route as I have several resources that could be interested in partnering on a deal.

MAIN QUESTION: As noted, I've mostly only considered accomplishing both of the above goals through personal/private financing to not only remove another bank loan from the equation but also continue to pay my current mortgage down and off in less than 10 years. But given everything I've learned about acting now and thinking more longterm I'm not really sure why it never occurred to me why I wouldn't want to leverage the incredible asset I've been living in, and plan to live in, for many years. So the main question is, are there any reasons why I wouldn't want to refinance by current house, potentially for $150k (~$75k equity), and use that money to both renovate my own kitchen/bathroom as well as finance my first real estate investment (really interested in BRRRRing) verses using personal savings/private loans? With my current job I'd have no problem covering a new, larger, refi mortgage for either 30 or 15 years so interested in hearing peoples opinion on what they would do in this situation.

What do you guys think? Really appreciate any and all feedback and perspectives!