All Forum Posts by: Ryan D.

@Rijm D.

Are you sure this is a Home Equity Line of Credit, & not a Home Equity Loan?

I've never had a HELOC that required pulling on it to get a rate, sounds odd. In the event that it is indeed a HELOC & you do have to pull from it, can you pull whatever the minimum amount is, hold it as cash for 1 month to qualify for the interest rate, & then pay it all back the next month?

Too may people are focusing on the idea of "early retirement" and being "financially free", rather than focusing on building a career they enjoy, find meaningful, & don't WANT to stop doing.  If a 30 year old is working a job they hate, eating beans & rice daily, & living cheaply in the ghetto, just to be able to quit their job in 5 years....I cant possible see how this is living a more satisfying life than finding a job you enjoy & brings you satisfaction. When young people ask me questions like this, I tell them they should aim to have the means to not be REQUIRED to work, but build a career where they still WANT to work. 

Look at the most successful people in any field, and they could have stopped working years ago - they don't b/c they derive meaning from what they do, & the satisfaction that comes with overcoming professional challenges. 

Also, the idea of building a real estate portfolio to "retire early" is completely non-existent. People who live off their real estate portfolio aren't retired, they are small business owners. They haven't stopped working, they've just stopped working for someone else.

I've found rentometer to be a very useful tool, doing much of the legwork for you in aggregating local rents. I think you get a certain number of low-level searches for free, & I found myself using this service regularly so I signed up for the pro-lite account, and have been very happy with its features & consider it a good use of my money, saving a good deal of time. I think they are running a deal now where you get the full pro membership for the cost of the pro lite. 

I also use Zillow for rental comps, and I find their numbers to be on the high side. 

Wow folks. There's a lot more to business & life than simply "fulfilling your contractual obligations". I've lived in rented small duplex/triplex-type buildings where the LL never gave so much as a "thanks for keeping the place nice", and in LARGE complexes where the management hosted annual holiday events for all the residents. Guess which management the residents treated better. Tenants can make your business easy, or a headache. Creating good will is one  way to encourage (yes encourage, not guarantee) the type of behavior you want from them. 

As far as scale, if your RE business cant handle a per unit $20-25 expense once a year, for client retention & good will, something is wrong. 

Have you never given a holiday gift to your kids teacher, or your mailman, gardener, baby sitter, etc? All of which you've already fulfilled your "contractual obligations" to when they got paid.....doesn't mean that generating some good will is a bad idea. 

We give turkeys to the residents in each unit every Thanksgiving, via our management companies. 

Are you doing fix/flips, or buy/holds? These are two very different business models. 

Expecting "instant equity" requires you to either buy below market rate, or you will have to force appreciation by making substantial capital improvements as soon as you buy. 

Otherwise, you will simply have to wait for the market to naturally appreciate, or for you to pay down the loan. 

You may have an inaccurate idea of the time scale involved when people say "rinse & repeat". They may be suggesting to do the same thing from one property to the next, but only once a year, or once every other year, etc. 

Also, beware of the HGTV/youtube/guru-type hype. RE investing is a get-rich-slowly game, anyone who tell you otherwise is selling something. 

Its all about cash flow. If you have enough cash flow to service your debts, and cover contingencies, then your equity is almost irrelevant.  You need to "stress test" your portfolio. How do you answer questions such as:

• Do you have any variable rate debt? If so, what would happen if the rate on this debt increased by 2,3,4,etc %. How much of an increase can you still cover, and is that amount of increase realistic to happen over a short period of time (say, 2-3 years)?
• What would happen if several of your tenants lost their jobs & couldn't pay the rent, you had to evict and had trouble finding qualified renters? 
• Do you have the cushion in your cash flow to cover an extended period of vacancy in several of your units?
• Does you profitability depend up on any sort of refinancing in the next few years?
• What would happen to you if market rents in your area fell by 10%?
• What would happen if YOU lost your W2 income/job?

Are you confident that you could ride out any of these events happening, and still be comfortable?

Good thread. So what do you do when your PM also owns the maintenance company (as mine does)? My PM is generally good, and very responsive, but I always believe there are more maintenance items on every turnover than their really need to be, and they cost a bit more than they should, but not being on-site, I have no way to verify it. 

There is no risk in establishing the HELOC (assuming you one can be responsible with such a thing) - its a line of credit, not a loan. You only pull money out when/if you decide to, & functions like a credit card. Just remember that when you do pull money out, you will owe interest on it (~5% more-or-less right now), so whatever investment you put it into, you had better earn you more than 5% return. Be sure you calculate the expense of repaying the HELOC in a reasonable amount of time into your cash-flow analysis of any property you purchase with the funds. HELOCS often have shorter amortization periods (7, 10, 15 years, etc), and can have a balloon payment at the end of some shorter period.

Used carefully, they can be an excellent tool for investments. 

When you show the property to prospective tenants, have printouts of the zillow & rentometer reports (that they can take with them) showing that you are under market compared to their other options. I've seen this make a noticeable difference in my rentals.