All Forum Posts by: Larry Turowski

Quote from @Albert Blair:

Quote from @Larry Turowski:

I acquire using cash and my HELOC, mostly, sometimes hard money, and rarely with long term financing up front. And then I refi into a portfolio or commercial loan after rehab.

People are always asking if they should buy rental property using their HELOC for the down payment or entire purchase, and is it "safe" to use the equity in their home to buy investment property.

HELOCs are such a great tool for investors to get started, and keep going. Few people have 10s or 100s of thousands of dollars sitting around doing nothing. Most of their savings is going to be locked up and inaccessible in places like a 401k savings plan. But lots of investors can start with the equity in their house. It is super easy to unlock and if you are not using it, it isn't sitting around doing nothing, it stays in your house and you pay no interest. It is the swiss army knife of investing, there when you need it for strong cash offers, repairs, rehab, etc, and sitting quietly in your pocket when not in use.

We are planning to use your strategy, Larry. We want to use our HELOC for the down payment and then replenish those funds back in the HELOC then invest in another property. Is that the strategy that you use? Thank you for the information.

Yes, that is pretty much it. It is basically the BRRRR method. Keep in mind more often than not you wont get all your money back when you refi out of a rental, just most of it. So, unless you have another way to save you'll still drain your funds, just more slowly. I also flip houses for cash injections.

I acquire using cash and my HELOC, mostly, sometimes hard money, and rarely with long term financing up front. And then I refi into a portfolio or commercial loan after rehab.

People are always asking if they should buy rental property using their HELOC for the down payment or entire purchase, and is it "safe" to use the equity in their home to buy investment property.

HELOCs are such a great tool for investors to get started, and keep going. Few people have 10s or 100s of thousands of dollars sitting around doing nothing. Most of their savings is going to be locked up and inaccessible in places like a 401k savings plan. But lots of investors can start with the equity in their house. It is super easy to unlock and if you are not using it, it isn't sitting around doing nothing, it stays in your house and you pay no interest. It is the swiss army knife of investing, there when you need it for strong cash offers, repairs, rehab, etc, and sitting quietly in your pocket when not in use.

@Karmina Luna-Dominguez I invest in Rochester NY. I can, indeed, be a tough place to be a landlord, but you can be successful. First, try not to get emotional. It doesn't help. It is just business. Most tenants are good.

Yes, it can take months to evict a tenant for non-payment. First, you will need to issue a 14-day pay or quit (leave) notice. If they don't pay you can take them to court. That may take two months. Once in court they can come up with some excuse and eviction stayed for a month or so.  Then they are served a warrant by the sheriff, and have another 14 days before they are finally forcibly removed if they haven't already left.  So, all-in-all, you can figure 4 months, plus a few hundred dollars in expenses. I recommend having an atty handle it all for you. 

@Alejandro Vallejo-Insuasty it sounds like you are trying to wholesale listed properties. Don’t do this.

Houses in nice areas are sometimes being listed at below market to generate lots of offers and will often sell above market, meaning way above asking.  But this is probably a house in a not great area and you are not comping it out right, especially if you are new and don’t have a great understanding of the values in that micro market. 

@Justin Mespelt The traditional way is you don’t cash flow. You don’t want the traditional way, you want the investor way. 

You are either going to need to look at lots of deals (maybe hundreds) before you find one, maybe change areas you are looking in, etc, or you are going to have to get over that daunting barrier to entry that BRRRs provide.  The traditional buyer doesn’t get over those barriers. Investors do. 

Rentecdirect.  I’ve been using it for a little over two years.  I haven’t gone back to compare but at the time the free options didn’t offer all the features that I wanted, like background checks (you pay extra for these but less than with other sites), online lease signing, and integration with paynearme for cash rent payments at various stores, ACH, pay by CC. There are fees to the tenant for these but not to me. And support has been great. 

Quote from @Greg R.:

Not sure if you understood the point of the post. I'm asking if anyone has real-life data so we can evaluate these scenarios. 

Let's say back in 1990 someone were to purchase a a 4-plex in the mid-west for 200k. This same investor bought a cottage on the coast, let's say La Jolla San Diego for 200k as well. In this scenario let's assume that the 4-plex generated 700k cash flow over the life of the loan. Let's say that the beach house didn't make anything for the first 5 years of the loan and made modest cash flow from year 6 forward, totaling in 200k positive cash flow throughout the life of the loan. 

At this point you can conclude that the 4-plex made 500k more than the beach house over the life of the loan through cash flow. Let's say that we go to sell and the 4-plex is worth 800k and the beach house is worth 1.7 million. 

Which property made more money for the investor? 

This is called internal rate of return (IRR). It’s a not so simple formula to figure out the return of your actual cash investment grew over time. It puts in in kind of savings account terms, that is, a savings account would have had to return X amount in compound interest to give you the same return over the same timeframe. 

it allows you to compare unlike investments by putting them in savings account terms.

Looking BACK at an actual scenario, it can do a pretty good job of telling you what your return rate was. Looking FORWARD, it’s only as good as your conjectures, all those “let’s says” you had. 

Let's put some real numbers on this. And somebody correct me if I didn't do my math right (with Excel's help).

If your friend in NY bought for cash, that equates to about a 9% compounding return per year. That is, he would have done the same if he had some sort of savings account that increased 9% per year.  If he put, say, $10k down, that equates to about a 13% compounding return per year.

Let's go with 13%. That's pretty good. But, you know what? I can buy for more than 13% below market. Of course, I have to keep doing it every year. On the other hand, I don't have to have a crystal ball to know that Detroit is going to tank and NY is going to rocket decades hence.

You should get a home equity line of credit (HELOC) instead. The closing costs are usually minimal and you can use and pay interest only on what you end up taking out.

Here are the lis pendens counts for my county.  A few years ago they usually over 100 and are getting there again.

09/21: 24
10/21: 16
11/21: 25
12/21: 30
01/22: 28
02/22: 34
03/22: 36
04/22: 26
05/22: 20
06/22: 40
07/22: 44
08/22: 50
09/22: 82