All Forum Posts by: Nathan W.

@David Nolan

Gotcha--I am glad I was able to clarify the question so that it makes sense what I am truly seeking.  I believe you are spot on that most people are just trying to help and that fact is not lost on me.  I also think you are right on target with the statement taht I can use this model to generate potentially more assets than by saving the deposit.  Thank you.

My current understanding is from a couple years of reading about real estate every chance I got, and the few rental properties I currently own.  The definition of novice is certainly debatable, but I feel that I am currently experienced enough in this endavour to make good enough decisions, as they pertain to my goals and risks and, most importantly, time to pursue deals.

I notice that you are a Professional Property Investor, according to your title.  I would assume if that is your full time job, you are better connected and come across much more opportunties for great deals and even more creative financing than someone that works in a completely unrelated field, such as myself.   I feel like sometimes those posters in your situation tend to overlook that fact.  Believe me if there were great deals immediately available to me, in my current capacity, I would obviously choose them.  That is a no brainer.  But the hypothetical deal that I presented here, developed from years of reading this site and speaking with local investors, easily meets my modest criteria for future plans.  I am happy with that.

This thread was started out of an abundance of caution to ensure that all of my potential pitfalls when comparing financing options was accounted for.  I thought that to be a wise decision, and I'm glad that I did.  

Thanks again.  Cheers.

This.  This is why I appear so frustrated.  I AM TRYING TO IDENTIFY THOSE RISKS!!!!!!!!!!!

I am not looking for a discussion on how those risks should be interpreted by me--I am quite capable of deciding whether I need to pursue that on my own.  I am not asking for analysis on the quality of the deal--again there are forums for that.  I am asking the community for help, just as I did from my initial post, in identifying the risks (I believe I called them cons then) so that I can consider them in the appropriate context.  

More specifically, I am asking for help in identifying risks that are present in Option 3 (25% down HELOC), but not present in Option 2 (25% down traditional). I feel like the members that helpfully brought these to light were responded to graciously and appreciatively. I am still appreciative of anyone that would like to weigh in on this area.

Thanks @David Nolan.  It may very well appear to you that I "just want to be right" from where you sit.  That could not, in fact, be further from the truth.  I WANT to be challenged.  I  WANT to debate this.  I WANT someone to present things that I may have overlooked when comparing Option 3 vs. Option 2.  I am quite content, if a valid argument against financing option 3 the way I indicated is presented, to admit that it was not a good idea.

But you have to understand where I am seeing things from my perspective as well.  The majority of these posts have been about the quality of the deal itself.  I am not asking to analyze the deal, otherwise I would have posted in the ANALYZE THIS DEAL forum and not in the CREATIVE FINANCING forum.  

Your advice on market cycles, IRR, etc. is great. But those are considerations for an investor NO MATTER THEIR FINANCING DECISION--doing a traditional 25% down OR an investor pursuing the creative strategy I presented. They have no basis in the discussion, at hand, which is weighing the merits of Option 3 vs. Option 2.

I posted this looking for critique of the actual financing plan, with a list of potential pitfalls. Aside from a few quality responses on that narrow focus, the advice has been analyzing the deal....finding better deals....this is outside of the scope that I would like to frame.  

This is the internet and it is sometimes difficult for multiple people to get on the same page.  So perhaps I could have done a better job at facilitating that.  

I have mentioned, that I want to buy this property and 10 more just like it so I can quit my day job in 7 years, if I choose to do so.  I can live quite comfortably on $24k/year from passive real estate investments along with a few other sources of income I have in a low cost of living country with favorable exchange rates.  But again, that is outside the scope of the discussion.  

I am not asking you to design my lifestyle.  I am not asking you to weigh the validty of the decision.  It is my decision and not anyone else's to design.

What I am asking for is a critique on the potential downsides of using a HELOC to fund a down payment, with a short term negative cash flow situation that will give the return I seek in a few short years, vs. saving the down payment and approaching a deal the traditional way.

Thanks

Yeah I think you may be right.  I believe they will still have greater restrictions on them since they are rental properties anyway, at least compared to a primary residence, but I'm sure you will be able to find a couple to do what you are wanting to do. 

Best of luck with your buildup and thanks for stopping by!

Originally posted by @Bob Bowling:

I have offered support to every actual criticism that was on topic.  I did not waste my time with those that weren't (well except for my first post to you, when you were so far off topic and condescending that it was not worth delving into further).  While you have had 3 posts deleted for personal attacks, abuse, and trolling, I have tried to graciously respond to every single poster, thank them for their advice, and offer thoughtful rebuttals to their points. 

There certainly does appear to be somebody on here with no interest in furthering the discussion, and instead only trying to make himself look better despite his contradictions and deleted posts.  It makes one wonder why he keeps stopping by.

I will not respond to childish criticisms such as "you don't even know what OPM is" and "how in the world do you just borrow the down payment?".  If you think I am really that stupid, and you are that smart, then you are just wasting your time. 

If you would like to accept my colleague request and discuss further in private, I would be happy to do so. 

Hey Gloria--thanks for your comment. Are you planning to use the HELOC to buy a property and fix it up and rent it, before refinancing out? Or refinancing out a few years down the line when you have seen some principal pay down and appreciation?

I like the considerations that you bring up--the benefits of the 100% financing for appreciation means you get to lock all of that down for yourself.  That is certainly a nice benefit, even if not counted in the analysis.

I would do a cash out refi, but it is not an option at this time. It would definitely cash flow immediately if I were able to do that, but the HELOC is the only option for that right now. Doing the refi would also be a one off type option, and I think the revolving nature of the HELOC works better for that type of short term funding. Even if it is slightly more expensive in the short term, it is reusable which I like.

My man! Thanks for stopping by--I thought I had read a post from you about a similar situation when I was doing some background research on this, but couldn't remember for sure. 

I am quickly learning that the tactic may not be for everyone--but I think it fits my long term plans nicely. 

I wouldn't mind to approach this strategy for one or two rentals until I can begin to realign my current lifestyle with an investors mindset, to free up more cash for RE investing, and create side income from other ventures.  Unfortunately I can't even begin to do the latter until I finish up grad school in late summer and am looking to get out ahead of that with some solid investments before that starts to take off, which is why I am even considering this.

Do you mind if I shoot you a connection request and PM to discuss more privately?

Bobby's assistance is neither required nor desired at this time.  Thank you for your time. 

Hey Joe, thanks for commenting.  I think you bring up very valid concerns that are worth taking a deeper look at.  Fortunately, I have done this as part of my analysis. 

In your worst case scenario, agreed that the potential is there that I lose my job and end up losing my home. I disagree however that this investment would have any appreciable effect on that. If I lose my job and am unable to find work for an extended period, I am going to lose my house anyway! My mortgage is a few grand a month--I see no situation where having a couple hundred a month outlay from the HELOC on top of that changes my consideration whatsoever.

So we have a few scenarios:

1) Tenant loses job and stays, and I keep mine. I am out the $550/month PITI on the primary and $250/month on the HELOC plus whatever eviction costs. As mentioned, I have $800/month savings potential, with no lifestyle changes whatsoever to compensate. That is exactly the loan amount. I either adjust lifestyle or leverage one of my other short term options (short term savings, selling stock, trading in other assets, PLOC, HELOC, credit cards, retirement savings) to cover this scenario. I am back on track after a few grand in eviction, rehab, and re-lease. I obviously still have my house.

2) Tenant keeps job and I lose mine. I have $220/month average coming in from tenant to work with. My total debt load for real estate is $2500/month mortgage + $250/month HELOC = $2750. Deficit then is $2530, just like it is now. I struggle to pay my mortgage and lose my house. However, if I am able to come up with $2500 through part time work or whatever , would I be able to find an extra $30 from the vehicles above, or from that part time work, to ensure I don't lose my house? Of course I would. All we are talking about here, as a result of the investment, is having to come up with an additional $30/month. If I can't do that I might as well go jump off a bridge.

3) Tenant loses job and I lose mine. The death scenario. I am out the $550/month PITI on the primary and $250/month on the HELOC (just like in scenario 1). I no longer have $800/month savings potential either, since that will be going to save my primary residence. A bad case indeed.

In this scenario, I let the bank take back the investment property (I'm not sure why you think this is tied to my primary residence, since I am not using my primary against that first loan) or try to dump it quickly at 80% LTV to pay off the primary. I take the credit rating hit if the bank forecloses. This sucks and sets back my investing life indefinitely.

I go to work saving my primary residence doing exactly what I did in Scenario 2 and find part work. Only now I have to come up with $2500 + $250 to cover both the mortgage and the HELOC. So I am looking at covering a $220 difference than what I think I can come up with from Scenario 2. I am desperate, and all of the bailout options above suddenly disappear all at once (and it is not Armageddon everywhere else for whatever reason)--I can take on a roommate or two at my house since it is more bedrooms ($800/month per bedroom). Other borrowing options may be available (Mom, friends, in-laws, etc.--after all desperate times call for desperate measures).

This is all until I find one of the thousands of employers in the Washington DC region who are looking for a Program Management certified electrical engineer with a systems engineering masters degree and 13 years experience in high profile DOD acquisition programs.  Not to say it WILL happen, butttt.....

I like my chances.  Especially since the most likely scenarios are:

4) Tenant keeps his job and I keep mine.  We are back where we started, and I have a cash flowing investment after 27 months (likely sooner) instead of 31 months going the "conventional" route

-------------------------------------------------

I'd also like to address a couple other points you made since you took time to write a few good considerations pertaining to the topic.

-The only reason I would consider this is because I am not finding the ones that cash flow with 100% financing.  I believe this to be obvious.  I'm sure they are out there, but they certainly are not in my market.  Perhaps I could pound the ground and other things to find them, either here or outside my area--I am more interested in focusing on my day job, which pays me well, and setting myself up for the future to walk away from it, and the high cost of living in metro US, without focusing on real estate all the time.  This is a personal preference, but if I can find a turnkey investment with the above criteria, which I know tons of people on BP would jump all over, I would like to take it.  10 of those and I can quit my job, live abroad in a low cost of living country, and enjoy myself.

So it's great that you are finding all these deals with 100% financing that put money in your pocket every month.  Perhaps with more experience I too will find them, but I don't have them now and I am not interested in waiting around on the sidelines from them to materialize when I have investments that meet my long term criteria and needs in front of me, with very little searching on my part.

-I am not gambling on future value.  I don't know where you gathered that from my posts.  Was it mentioning the probable rental increases? I did not consider them in the analysis from a standpoint of anything other than icing on the proverbial cake.  The value of the property does not have to increase at all to meet that long term criteria. 

-Yes I have told the bank what I am doing. they have no problem with it. Why would they? They are in first position on the loan and it is my money. If this investment materializes, I am going to load it into my business account and let it season for 2 months and as far as they are concerned in underwriting it is already there. Only impact is my DTI ratio from the increased HELOC payment ($250/month) but I am far far far away from that being a disqualifier at the moment.

-I have a 6 month reserve in almost any asset class you look at (cash savings, retirement, stocks, personal assets, etc.). It is only $550/month PITI. Yes that is not even a remote disqualifier for me.

-I'll just let my post above stand for the way Bob acted in this thread, and my subsequent responses to him.  I have tried to graciously thank everyone in this thread that attempted to put effort into answering the question and offering their perspective.  I am not going to sit and be talked down to or trolled by anyone, their experience in real estate or "post likes" be damned.  Maybe Bobby Boy was a good contributor to this forum once upon a time, but a quick search of all his most recent posts (excluding the three that were deleted from this thread because of their abusive/trollish content)  in this thread and others shows that he really isn't here to foster a positive impact on the community.  that is a shame.

I do sincerely appreciate you for weighing in--I think I have these considerations taken into account.

Cheers

Thanks George. That is a very good point, and one that I actually considered in my analysis. Since it is not an interest only HELOC, but is instead an interested + 1% principal loan, the interest rate doesn't affect the payment amount as much as it affects the timeline.

 Even doubling up to 8% only adds a couple of bucks a month to the payment.  I can't remember where it extends the payback term to, but it would probably be 6-12 more months just running quick extrapolation in my head.

I appreciate your advice--this is the type of consideration I find interesting in this scenario and I believe it to be addressed.

Cheers