All Forum Posts by: Ben H.

I currently have a HELOC on my primary residence and was looking to do a cash out refinance on my rental. I was told by my lender that in the state of Texas a HELOC is considered a type of cash out Refinance and state law says we can only have one cash out refi's on our properties. Can anyone confirm if they have experienced the same thing or ways you have gotten around it. Thanks Ben

Hello Rob I would be curious which nice areas you are referring to. DFW is so spread out, I would be curios to understand if it may be just pockets versus other areas that might be more protected.

Michael, I agree with Christopher in that it is not a good deal for you. That being said, I am interested in understanding why you are so keen on this property. Is it that you don't have the ability to finance it outright with a bank? Are you in love with the house, with the location of being on the water, or the whole package including that it comes with a high paying renter? Would this be your first property and this owner is one that will work with you? The other thing I would add is there could be complexities to FSBO including if the owner passes away or acceleration clauses on the remaining loan if there is still a mortgage on the property. Etc.

I have a similar situation but I set a threshold in that as long as they don't overlap months, I don't sweat it. This family has been tenants for four years but his job is one which pay is inconsistent. They keep the place better than I ever did when I lived there. They have 2 young children which I can empathize trying to raise. The way I see it is if I had tenants that moved every year or did not keep my property well maintained, it would cost me significantly more. When renewing their Iease, I indicated if they paid on time I would discount their rent $25. Guess what. They still are late and I get another $25 a month to manage it. In the 4 years they have been there, I can count on one hand how many times they have paid on time. In the end, it is a good relationship and we have recently agreed to chip away at them being late by adding another $100 on their rent until they get caught back up. We will see how it goes.

Welcome Stephen and go Red Raiders! Denton is a great area.

It is interesting and agree that RE and stocks are just different ways to invest. With the market here in Texas getting to unprecedented levels, I put my RE investing on a temporary hold and looked at stocks. I saw oil as the opportunity everyone was kicking down this past January and was smart (lucky) enough to throw a decent chunk of my 401k in it then. Here is the thing that I always come back to. It is much easier to make money in a good environment in either RE or stocks. But if another 2008 comes around, I would be curious how successful each our strategies would work.

Hello Joe,

I don't disagree with what you are saying but I am not under the impression this level of accelerated growth is sustainable over the long run.  There will be pauses and even pull backs.  I actually see this recent growth a "catch up" effect from the Dallas market not really doing much when the other markets did.  To give you an example, I purchased my townhome in December of 2002.  For the benefit of this discussion, it was new construction about 2000 sq ft and cost about $150k.  For the ten years I lived there, the value of it moved only $5k either up or down.  It really did nothing while we would continue to hear East and West coast properties moving up 8% per year.  When the recession happened, the East and West coast properties moved down 8% + per year.  Dallas subsequently did not get much of a hit after 2008. 

A rule of thumb is over the long run property values increase about 3% per year.  Over the past 4 years, the value of my townhome has increased to around $250k.  If you take the 3% year over year calculation, over the 14 years I have owned that property, it comes out to be around $250k.  So in my mind, I see it as just catching up with where it should be.  I don't believe we are in a bubble because it is substantiated by growth but I do not believe this type of growth we have seen in past 4 years is sustainable. 

That being said, the thing that goes through my mind is how long will we continue to see this growth before a pullback occurs.  The other thing I ask myself is how much higher do I see my townhome going in value.  There are already cracks in the dam regarding the Dallas valuations.  An example of this is regarding the Toyota business you refer to.  In one of my real estate classes, I had a California Toyota transplant that moved here as part of the first wave.  She was saying that quite a few folks from Toyota have gotten concerned about what the valuations were originally when they made the deal to move to Plano versus what they are now.  In addition, approximately 1,000 of the 4,000 jobs are coming from their Kentucky or Tennessee plant. (I don't remember which state)  The folks at that plant have stated that they will actually be worse off with the increased valuations than if they would have just stayed there. 

When I look at what I have done to this point, I have used leverage to purchase the 4 rentals I currently have.  A question I have been asking myself is what is the difference between collecting rent from one of those properties and continuing to carry a small mortgage on that property along with paying a mortgage on my primary residence versus selling that one rental and paying off my primary residence.  In the end, the rent loss would be offset by the mortgage I don't have to pay on  my primary residence.  The down side is I would only have one property that would potentially increase in value and can write off.  The upside is I would also be more stable when, and if a slowdown occurs, as well as having one less property to manage or generating expenses. 

In the end, I would still retain 3 rentals to go through whatever the future holds.  The worse case scenario would be if I had to sell them, I would still be left without a mortgage on my primary residence.  It is a similar strategy used when buying stocks.  When you get a sharp run up from the price, taking some off the table to prepare for the next opportunity or to help survive the next down turn. 

I am all about leveraging but doing it intelligently and not blindly.  I have seen too many friends get burned that way.  I do hope this growth continues as my other 3 properties will continue to benefit.  There is a sugar high many are experiencing right now.  However, if it does sour, it will be good to know I have some additional stability.  I don't need the money but that could change with the loss of a job which can be unpredictable.

I have not decided one way or the other but definitely appreciate everyones insight!

Originally posted by @Account Closed:

@Ben H.   I wish I would have purchased every property I could have possibly gotten in East McKinney.  Since they go for about 4-5 times what they did in the down turn.

Then there were all those repos from the builders that have more than doubled. 

Ok.  Now I might cry.

The way to survive it is simple.  Look for good deals to start with.  Do not simply buy retail and leverage it to the hilt and hope it works out.

Try to be ready to buy when other can't.

Hello Michael,

I wish I could have purchased more as well!  This is something we have never seen in Texas before so it is a little unprecedented. 

Hello Marie,

Good thought on the 1031 exchange.  Being we are in Texas, we don't have any state income taxes.  My understanding is as long as the property has been rented out longer than 1 year, the maximum long term cap gain tax is 15% on real estate.  That being said, saving those taxes and rolling over that capital is a good approach. 

Thanks again!

Hello Shaun,

I am more than happy to share my thoughts.  We have several folks that have moved in my neighborhood from California as well.  Feel free to reach out!

Thanks

Ben