All Forum Posts by: Michinori Kaneko

Hi Rob,

Depends on what your long-term goal is, but buying what you will grow into is what I did.  When my wife and I were not married yet, we looked for a 2BR Coop in neighborhood that had a good public school (about 5 years ago).  Until about 1.5 years ago when we had our first child, we were renting our 2nd bedroom.  You always have that option (or even Airbnb, we did short term rentals for few few months until our tenant who stayed with us for 3 years moved in). One thing to keep in mind is your income will grow over time, but your mortgage won't.  when you do buy your larger home in the future, interest rate could be much higher (but maybe price maybe lower, who knows). It gets harder to save money once you have kids (and maybe you won't have the luxury of dual income at that point.   My wife doesn't work now, and we lost our tenant too, so it was a double wammy for me), so it's better if you just buy it now. I personally think that's a better approach.

However, from investment standpoint, perhaps not as great, since you COULD invest that extra money and hope to get extra returns from the capital you saved.  But you don't know if the appreciation on your below budget property + whatever return you get from you investment property will beat how much the bigger property would have appreciated.

Hope that helps!

$0 repair but after repair value is $20K higher. does that mean you think you bought the property for $20K discount from what it's actually worth? If so, based on the report as well, but it would be much more smarter to just flip the property and sell it for $57K (you just made $20K for FREE!)  Also are you managing the property yourself? If not you should consider cost of property management + tenants placement fee. 

probably should look at % rather than $.  a $1000 profit on a $300k property is not as good as $500 profit on a $120K property.  It's all relative to your purchase price and cash outlay.

Interesting topic! I ended up choosing Fort Wayne, Indiana.  I started from this list and went through each city that had higher rent to price ratio (or rather lower price to rent ratio). I had personal ties to Fort Wayne, and while I was visiting there i really liked the neighborhood so I stuck with it!

If SFL is renting for $1100, I doubt you would get $1000 for duplex.  Just my thought.  why would you pay $100 less to live with someone else? 

However, if you can get $1100 SFL for $75K, I think that's still a good deal.

Also, one thing i noticed that these calculators are missing are if you are using a PM (which it looks like you are), they charge a placement fee, which should def be incorporated into the numbers.  Totally missed that it was a duplex originally, but if it's duplex don't you have more expenses that you as a landlord need to pay for the common areas (e.g. mowing, heat/utilities in common area, etc.)?

where did you find this great deal? $2000 rent on a $75K property? Please tell me where to look!

Just my opinion, but personally i wouldn't. taking money out of 401Ks and IRAs other than qualified reasons you get large penalty fees on it.  Only exception is your principal balance on ROTH IRAs which you can take out at any time for no penalty.  

Borrowing against 401k is another option, but I don't recommend that either.  If you "Borrow" $100 today, and the stock markets skyrocket, you have to "pay yourself back" for amount that the stock has skyrocketed for (which may end up being much higher than whatever return you make on real estate).  Now may be the best time to do it IF you are ever going to consider doing it, as the chance of stock market skyrocketing any time soon is very slim.  Still would advise against it and keep your portfolio diversified.  However, if you are looking at short term flips, the chances of you getting screwed on stock market skyrocketing during that short period is slim so it may workout.  I would never consider it for rental properties.

hope that helps! 

Hey @Darrick Lowe

I asked some questions regarding HELOC yesterday as well, but haven't gotten much responses to it either. I would be curious to see if you get more responses. For your reference, my post from yesterday is here

Thanks Michele.  

For #2. The $2K is not monthly, its annually. that figure is net of all expenses and allowances. So effectively, if I use this amount to repay the $100K i borrowed, it would take me 50 years (actually probably less because i'd be paying off my principal early so my interest piece would be smaller). which means I will have 0 equity at 0 cost at day 1, and 100% ownership with 0 cost in year 50...

For #3. I see that makes sense. I was thinking from perspective of "not fully paying monthly payments" if that counts as missed payment or something. 

For #5. How do investors cope with that? what if I borrowed $100K and the market tanks after i used that $100K to purchase the home? Are these risks that investors that uses HELOC are considering?

Also, going off of what you said, what is the significance in cash-refi your investment property to pay off HELOC (you're effectively just swapping one loan for another). Is it just based on which interest rate is higher?

Thanks again for your opinion/advice on these :)

Hi All,

I purchased my primarily resident about 5 years ago, and thanks to the housing market in NY going up like crazy, I have a pretty big chunk of equity on it. I can take up to $200+K of HELOC at approximately 5% APR, and i'm thinking about using some of that to invest in properties.

I also recently went into contract on my first investment property (without using any borrowed funds).  Purchase price was $80K, and estimated net cashflow after vacancy and capex assumptions (pretty conservative) is about $2300 ~ $3200 annually (based on what I can rent for, which ranged from $1000~$1100 a month).  my upfront fees (including down payment, closing, fix up fees) is estimated around $32K.  

If I borrowed $100K HELOC, I can purchase 3 of similar stats property. My monthly interest on HELOC is about $410 (or $4920 annually). Obviously, if I had $2300 annual cashflow x 3 that can easily cover the HELOC interest payments + about $2000 of free cashflow. That's $2000 free cashflow, so that's great, right? However, once the drawing period of 10 years end, my monthly payment would essentially double, and that point, with the current numbers i'd be cash flowing negative. So here are my questions:

1. Who knows if I will still have the investment properties, or what my rents would look like, or how much the values have appreciated in 10 years.  Should I even think that far out, or should i aim for the $2000 cashflow that I could be getting now?

2. Do you use the extra cashflow ($2000) to payback the principal balance, or to maximize the benefit of leverage you only pay back interest only for the first 10 years?

3. Does only paying interest only on HELOC have negative impact on your credit scores?

4. Do you use HELOC in tangent to cashout refi on your investment properties, or should I stick with one or other?

5. What happens to interest rate/credit amount on HELOC if value of my home decreases significantly? can they call the balance back? Will my rates go up?

Thank you for your help in advance!