All Forum Posts by: Michael Hayes

I've seen many in different forums, but still trying to find an exact answer on this. I know a HELOC can be used as the 25% down payment for a residential property, but how would a Commercial Lender view using a HELOC as 25% down payment on a Commercial Property? Excellent credit, > 12 months reserves, net worth greater than the entire purchase price. If money is tied up in other investments and the proposed Commercial property would cash flow with essentially 100% financing, would the lender be OK with this strategy?

@Don Konipol This is excellent advice and really made me think, thank you. You are right about the multiple goals. I have a financial adviser who also has real estate investments and would be a great contact source. I would like to make use of the equity in the property, but it's not like I have to. I would never take that equity and put it in the stock market, but if something came along that I could get a 10% return and borrowing for 4% or less, I would be all for that.

Thank you, I just ordered the book and am looking forward to reading it! I guess the general consensus is that this is not a good idea. I probably would not use the house unless it was the off-season or if it was available during the peak weeks with no renters. Goal destination can always change, but I've lived on the Cape my whole life (30 years) and have always had a goal of owning a home on/near the beach, so while things can change, this has been a consistent goal. We can go all day running different scenarios I just think based on past and future predicted appreciation that the higher end homes will appreciate at a greater rate then the income I'd be able to get from other properties that cash flow and thus the higher end homes will end up being more expensive over the course of 20-30 years if I wait to buy them then now even if I am putting money in regularly.

I think Julie McCoy hit the nail on the head with my thought process.

"@John D. and @Michael Baum have raised really solid points (and @Mary Mitchell is correct that some markets are better for appreciation than others, but if that's your strategy, you've got to really understand it). Now, if your goals are not maximum ROI, but instead to have a personal vacation home with some costs offset, that's a whole different scenario. Then it's just a question of cost/benefit; knowing you can handle the ongoing costs of the house because the income won't be sufficient, and feeling that cost is worthwhile for the personal enjoyment you'll get from it (make sure to factor in how your personal use will affect the income!)""

Thanks Ralph - I find the season extending into June and September. We've been lucky with good weather those months and it is more affordable for many because the rents are less than the peak summer weeks. Also there are many weddings during those months. Though to your point we have 10 peak weeks in the summer that are most desired.

Goals: I was hoping to check off a few. 1) Lock in price and low interest rate for a long-term investment that will more or less pay for itself. Home prices on Cape Cod have rise steadily and though we can't measure the future by past results, the real estate market here has consistently risen for the last 100 years plus. $1.5 mil a house today is likely going to be a lot more in 10-20-30 years. So I think appreciation is definitely more likely than not and definitely more likely to occur buying a higher end property than a middle or lower-tiered property. 2) I'd like for this property to be my primary at some point in the future. If the numbers can work I'd (ideally) be achieving this for less money than if I bought this property in 20-30 years. 3) Cash-flow. 

Rough numbers:

Purchase price say $1.5 mil.

On doing some more research I could probably c/o the entire purchase price from the other home at a rate of around 4% and only have the one mortgage and buy this property all-cash.

Monthly costs

P&I = $7,161

Taxes estimated $1,200 monthly

HOI in this area around $250 monthly

Flood insurance? Say maybe $500 monthly if needed

That adds up to $9,111 monthly.

So annually the mortgage etc would be $108k.

I know there are other expenses, property management if we need it, vacancies, and maintenance.

A friend has a similar property that grosses $140k on AIRBNB. All short-term rental taxes are passed on to the renters as well as cleaning fees, etc. Because it's a seasonal property there is less wear and tear. The renters are at the beach most of the day and go out at nights, the property is used mainly to sleep, shower, and in the morning.

The rental income on Florida cover the costs for that property and my parent's house so we are covered there in terms of expenses. We have roughly $1.5mil in liquid assets in case of emergency which would help if needed.

If these numbers do not like good, might you have recommendations for numbers I should be looking to achieve given my goals?

Follow up, how would you leverage the house to deploy money into other RE investments?

Thank you. OK so if we take appreciation out of the picture, let's say I won't bet on that to happen. In a perfect world I hold this house for many years, eventually it gets paid off, so like you said I may not even realize appreciation since I don't plan to sell. But if the higher end properties don't cash flow, without putting any money into it, is that really that bad versus putting a few hundred thousand down and now it cash flows but I've just put a lot of money in? What If said I was going to take $500k from granddad's house and $500k of my own money and had cash flow, would that be much more ideal than taking $500k from the refi and $500k financing on the investment property and no cash flow? I appreciate your time on this and hope I'm making sense.

Thanks for the quick replies and great input! What would you recommend having saved for reserves for something like this?

I am looking to buy a seasonal investment property on Cape Cod where many people are making $100k plus a season. I know the market up here fairly well, so even though it may not be the best ROI it's something I'm comfortable with. I own a primary home with a mortgage, an investment home in Florida (no mortgage), and a third home with no mortgage that my parents live in. The Florida home was inherited recently from my late Grandfather and so I don't know the market down there very well. The home my parents live in I also inherited from my late grandfather. That home's value is around $2mil with no mortgage. I am thinking of doing a HELOC or c/o refi to come up with $500k-$800k as a down payment on a $1mil to $1.5mil property and then financing the rest with a traditional or jumbo investment mortgage. I figure the rate on the non-investment home will be less and this way I can buy a rental property will all borrowed funds. I could put money down, but figure why should I when rates are so cheap? All the posts I've read about say cash flow is so important. I don't think I would cash flow in this case, but is it a huge problem when I have not put any money down? I figure if I have to put a couple thousand a month (kind of like a 401k) it is better than putting $200k-$300k down at the start? So we have reserves in case we don't cash flow. Our income is strong so we would qualify for the two loans and our only debt is the mortgage on my primary home. I like the idea of renting seasonal as these homes seem to have much higher income and appreciation. The duplexes around here are in rough shape and 3-4 unit properties are not common. Also I'm hoping in 30 years it would be paid off and I could use the home myself, that would be the end goal. Any thoughts are most appreciated.