All Forum Posts by: Scott Ellis

Hey @Ivory Hayes.  I hope some lenders jump in with their point of view on this. I don't believe it would affect your credit score substantially; because your overall credit utilization would be the same whether the amount was on a HELOC or a line of credit or a credit card. However, your DTI would definitely vary.

What are you minimum monthly debt obligations? Here's how my minimum monthly payment would've looked if I had a $50,000 balance in three different scenarios:

• $1,000 - Unsecured Personal Line of Credit: Minimum payment is 2% of balance
• $500 - Credit Card: Minimum is 1% of balance
• $157 - HELOC - Interest only payment required at 3.75% Interest

So you can see around a 6x difference between the three types of credit. This could have a significant impact on your DTI.

Thanks @Eddie T. That makes total sense, except that's exactly why I'm asking the question. Upon opening a HELOC there was no seasoning period required. I could transfer from the HELOC to my checking and immediately pull a cashier's check for the down payment. I believe it's because the HELOC are verified funds from you (and not a terrorist).

So my question is regarding whether paying down the HELOC instantly makes the HELOC available for use again?

Thanks @Andrew Postell, that's helpful. But to confirm, you wouldn't have an issue using a line of credit to cover the down payment on a conventional mortgage? I thought guidelines required it to be seasoned cash or equivalent (like HELOC or Roth IRA).

Here's my scenario with hypothetical numbers. I'm in Spokane, WA.

I have a $50K HELOC that is maxed out. I have a personal line of credit for $50K with a $0 balance.

I can use a HELOC for a down payment on a conventional mortgage, but not the line of credit.

If I transfer the HELOC to the personal line, what are the implications?

The balance on the line is still factored into my DTI, but would I now need to let the HELOC season for two months? Or could that be immediately available for use on a new property.

Thanks a lot for your input.

Hey @Bryanna Mendoza, winter's progressing.  How have things been going on your house?  Any news or progress?

I'll echo others that it seems high, but maybe not insane. I just rehabbed a triplex similar to your size.

Roof - $23k for complete tearoff and 30yr composite.

Exterior Painting 9k - first floor was wood siding, second floor was stucco.  This including some prep, but not crazy amounts of caulking and sanding. 

Your exterior is over 3x what mine was.  That's alarming.  However, was lead-based paint a factor in their pricing? I got lead paint certified this past summer and it adds a LOT of work to do EVERYTHING up to par.  On my triplex, we did a fair amount of the prep ourselves as the homeowner to make our painter's life a little easier.  For example, if they pressure-washed the house, they would need to lay out tarps to catch all the runoff water and pump it into a toilet for disposal.

203K—I would simply say to be extra cautious about this and only work with a lender who's done 5-6 of these in the past year. We intended to do a 203k on our triplex. It was a nightmare that fell through at the last minute and cost us close to $4K out of pocket (without getting the loan) in addition to a $4K lead based paint credit from HUD we lost. Underwriting is VERY picky since their loaning so much over the purchase price. Message me and I'd be happy to share all the gory details of it.

Hi Casey, How do you think last year's windstorm affects the market?  I know some of the mobile parks in Deer Park and north sustained major damage.  What is the effect of that?  Are people throwing in the towel and looking to move out of their parks?  Are there more people looking for a new spot now? Or are people in good shape because insurance is replacing a lot of these homes?

Being a bigger deal than you were thinking for your first, this one's interesting.  I've been checking it out on Loopnet over the past 6 months.  If you could sell the 17 park-owned homes, that could be an easy way to replace some your downpayment.  Or. . .landlording 17 homes could be real pain.

Have you listened to Kevin Bupp's podcast on mobile home park investing?  He's got lots of great interviews that would be relevant to you.  One of the most recent was a guy who was placing brand new homes on the unfilled spots and then selling them himself. I'd imagine getting 20% of the homes in the park to be brand new would really raise the feel of the place.

I'd do lots of research on the well/septic side of it.  A friend of mine has a 110 unit park and just finished the process of getting certified to test and monitor the water quality of their well. Poisoning dozens of people doesn't sound very fun. . . 

@Ansel Carroll, welcome.  You're going to have a lot of fun and learn a bunch on here.

Let me know if you ever want to connect.  I'm in Spokane, but just this summer used the equity in my primary to buy a triplex and move into one of the units for a bit.

I'm happy to answer questions or share my story. Or introduce you to others in the Spokane area.

Hi @Bryanna Mendoza, I'm so sorry you're dealing with this. It really sucks and I'm sure it's hard to not feel defeated—especially on your first house. 

I recently purchased a triplex on the south hill and it's a somewhat similar situation.  I thankfully did scope beforehand, and budgeted 10K for repairs.  However, I got a second opinion on the video of the scope and they think we'll be okay just rooting annually for the time being.

We're on a community sewer line as well.  Four homes are connected to it; the city confirmed (at least in our case) that we're on our own for repair costs and permits & paving if we disrupt the street.

Several thought for you:

• I HIGHLY recommend Action Drain.  They do hydro-jetting, though I'm not sure on the cost. We've used them 4-5 times on a couple of properties and they are super responsive and knowledgeable.  If you call, I'd just explain your problem and ask for one of their more knowledgeable technicians.
• I've never done this, but a neighbor said he's had really good luck with flushing pounds of rock salt down the toilet (article). It dehydrates and kills the roots. I'm curious, though, if that would be corrosive to the various pipe materials (cast iron, clay, orangeburg)
• This could be more drastic but not as expensive, but can you simply cut the trees down near your line?  Upon snaking, Action Drain pointed out the two 12ft evergreens that are causing most of our issues.  We're cutting them down in the spring and replanting further away with a species that has a smaller root ball.  In your case, it looks like it'd be your neighbor #2, though it looks like they might have at least one large tree. But in terms of the previous tenant constantly complaining, it looks like the entire northern 100ft is lined with vegetation.
• You may have already looked at this, but on the Spokane GIS map, you can actually find your house and turn on the sewer lines to see what you're dealing with. On the left menu, click Layers > Utilities > Sewer. 
• I'd definitely go to city planning and chat with them.  They're great and way less intimidating that I expected.  If you park in Riverpark Square, there's a skybridge on the 2nd floor of the parking garage that goes right into Planning, so you don't have to check in with security on the main floor.  They can find the old drawings and details of the community line and answer your questions regarding the mainline in front of your house.
• As to your legal questions, I'd reach out to Jordan Tampien at 4 Degrees Real Estate.  He's an active local investor with a legal background.

Best of luck and keep us updated on how you progress with this.

Welcome @Jayson Cornwell.  I replied to your Kendall Yards post, but thought I'd chime in here as well.

First, don't despair about the current climate.  It's tight right now.  I've been watching the larger multi-family market this past year and there's maybe 1/5 of the deals that were available earlier this year.  It's similar in the smaller multi-family and single family market.  However, it'll shift again.  I imagine there will be another wave of properties come spring.

And per your goal of 7 years, I'll respectfully disagree with @Thomas S. and take the side of "Go for it!" However, for it to be a true goal, make sure your wife's on board with it.  Otherwise it'll be extremely stressful for both of you.

My goal is to double the number of doors I purchase every year over the next 4 years. Look at that concept for you and your 7 year goal:

• Year 1: You buy a single family rental. You stress out.  You're worried about the accuracy of your projections. You don't know what you don't know, but you're learning and (most importantly) you took action and did your first deal.
• 2 units: A duplex. Your first deal is the hardest, so you'll have learned a ton about financing and where your projections were faulty. Now you find a duplex and realize that you reduce your risks by having two units together to minimize the pain when one is vacant.
• 4 Units - Maybe you like duplexes, or maybe you want to reduce risk even further and purchase a 4-plex. By now you've met some other investors and are learning about hard money, private lending, or creative financing options and how it could accelerate your wealth building.
• 8 Units - Maybe you sell your initial single family and use that equity to buy two 4-plexes over the course of a year.  
• 16 doors - Ok, this is starting to seem like a daunting number, but then you realize that you've already got a good portfolio to establish trust with commercial lenders. You've also learned that bigger deals actually seem easier to fund; so you buy one 16 unit apartment complex.
• 32 doors 
• 64 doors

Admittedly, years 6 & 7 seem daunting. However, very doable if you're partnering with others on apartment deals.  

Now, using VERY simple back of the napkin math; if you stuck to this plan and average $100 profit per door per month, you'd have 127 units earning you $12,700 per month, or $152,400 per year before taxes. AND, your taxes will be greatly reduced because of depreciation and several other tax advantages for real estate investors. WOW! You could live very well in the Spokane region on $120,000 per year of passive income.

Okay.  Now it's easy to poke lots of holes in this.  And there's plenty of variables that aren't taken into account; especially on the funding side.  But for me, it's an easy way to sketch some actual numbers to the nebulous phrase "financial freedom" and how long it will take to achieve it. 

Maybe you don't get there; but I honestly believe you could get through year 5 without it being totally overwhelming—and that's still 30 units or about $36,000 a year in passive income.  While you can't retire to a beach yet, that's still life changing income.

I'd love people's thoughts on this way of ballparking things, and if there are any reasons to just throw it out all together.