All Forum Posts by: Sean Honeycutt

@Nick Giulioni, Cash out can work, but the problem comes in paying interest on the money while I don't need it. With a HELOC I only draw what I need and then pay off the balance. I had one, but as soon as I opened a new unit, the bank decided to freeze it, but it was great while I had it because I could pay contractors with credit card and then pay off the card right away and finance through the HELOC.

If I do a cash out refi, I'll have to leave the funds in a CD or something until needed. Not a great ROI.

@Robert Hooks, sounds like it may just be an industry wide crack down on HELOCs in general?  Makes me wonder if part of the problem is that I am trying to get the HELOC on a rental unit and not on my primary residence.  If so, maybe I should do a combination - refinance the rental unit, take the balance of the cash out and pay down the primary address, then get a HELOC on the primary address?  Seems like playing shell games, so I'd have to be super careful to document everything for the IRS...

@Melissa Uppelschoten, Yes, getting property three up was more difficult.  It took a lot of shopping just to get a mortgage for it.  I wonder if banking is just going to be super tight gripped on the purses waiting to see what happens with inflation from the stimulus bills + businesses after CoVID + regular market forces.  That makes sense to me, just makes life a bit more difficult. 

Good day, 

So I keep hearing about BRRRR as the way to go, but I'm running into issues with banks not wanting to offer lines of credit or cash out refinances. Market's pretty good in Indianapolis and the suburbs, and my credit's in the excellent range. So I am thinking it's just a matter of the banks don't write scripts on rental properties, or have minimal experience writing scripts on rental properties, so they are just saying no.

Anyone know of a bank that does these types of loans for us more often?  Maybe I am just asking the wrong banks, being my thought.

@Evan Polaski,

I wouldn't use a Property Manager at all, but I have a full time and part time job so I don't have time to screen tenants or deal with bad tenants.  That's all I really need them for, though if there are major repairs I don't mind having them hire a professional for it (ie if the the motor in the furnace needs to be removed and blown out because the tenant failed to replace air filters; replacing doors is kind of a pain so I'll pass that off even though I can do it, stuff like that.) 

I was just wondering if this was kind of industry standard - they wanted to do all repairs as some sort of way to generate extra revenue?  Just curious because I'm of the fan of doing as much as I can to save money and to know its done correctly.  

(((break)))

@Tracy Streich,

See, that's how I expected it.  If there was a tenant, then the PM could arrange to get repairs done as needed.  Since we are between tenants, I figured I'd take their move out inspection and have an enjoyable weekend patching and fixing up the place myself - besides, I filled all the nail holes and little dings, then painted it with matching paint and made sure it all blended it, I doubt the PM's painter would be nearly that perfectionist.  

They didn't say I couldn't, but they had this awkward silence and I was beginning to wonder if I was doing something antithetical to the industry standard?  Like if they had to do repairs for tenant damages to legally withhold the funds from the security deposit?  I didn't want to make things harder - but I also don't want to waste money when I am perfectly capable of doing it.

So I've been using this property management firm for a few years now and we had our first real "tenant damage" between tenants (I guess this timeframe is considered turning, not flipping, but if you have a better term for the time when repairs are being done between tenants let me know.) 

We had minor stuff before - patches that needed painting, handles that needed tightening, things just not really being clean enough - you know the typical "stuff" you expect.  This was more.  Screens were ripped, there were softball size holes in walls, stuff like that.  Still I wouldn't consider it bad, but you know more than normal?

Anyway, I'm an extremely handy guy.  I'll not claim to be a carpenter or plumber, but I was a licensed electrician in the IBEW, so I am used to getting my hands dirty.  Replacing screens, patching walls, and other repairs are not outside my bailiwick by any means.  Yet for some reason, suddenly my Property Management company is all defensive because I refused to let them do the repairs, I did them myself.  Told them to just bill what they would have paid their guys to do the work and get out of my way (they needed 10 days to start work, I was done in 3 days.)  I figured if they found fault in the repair, they could just redo it and bill for them instead of paying me for it.

Is there some logical reason, as the owner, I shouldn't be allowed to do repairs for tenant related damages?  I never got push back on doing things like changing locks, reprogramming garage door openers, or the other typical stuff - it's just now with the tenant damages the property management company is having issues.  (I did it anyway, it's my house dang it.  I'm not paying $65/hour for someone to patch and paint a wall, not when I have teenagers I can teach how to patch and paint a wall and make it look good when they're done.) 

I want to note, I sent them copies of the receipts as well, and while I am sure they have volume discounts, I am pretty sure they use the same hardware stores that offer me a veteran discount so the price can't be off by more than a couple percent - which would be owed back from the tenant in either regard, wouldn't it?

Just curious.  More concerned they were pushing back for some sort of legal reason - not necessarily a law, but maybe to make court easier if they had to go to court?  

@Lindel Smith, I believe you are correct that many of the properties in the Indianapolis area, especially the NE and E side suburbs are over priced.  Except, that is where immigrants from Chicago seem to be moving into, so they're selling a 3 bedroom 2 bathroom for $300,000 and buying one for $200,000 (what 7 years ago would have been $130,000 when I moved from IL to IN).  So I, and this is PURE opinion!, feel that prices may go up to about $300,000 before they plateau.  The problem is, we (as in me at least) are looking for something under $200,000 we can fix up and lease for a reasonable sum.

Those deals are far and between it feels. Granted I am stuck with the MLS (Homesnap is great, double check through Trulia/Zillow to find listings, but Homesnap seems to be really good at updating and keeping up to date) which means most of the good deals are already gone.

Yet there are still some good ones.  I like Warren Township.  Strong Class-C homes in a blue collar neighborhood.  There's children playing in the streets, there's original owners from the 1950s, the trees are fully developed.  If you can get an unflipped house, you can put a lot of sweat equity in to boost your appraisal and lease for a decent amount.  

Other areas that I have had recommended to me include Perry Towship, Center Township, Washington Township, and Franklin Township.

@Corey Ogle, Noblesville is great.  I live in Noblesville and my first rental is there.  Just keep in mind it is growing, which means the builders are throwing up new houses left and right which is going to give you a lot of competition.  Also, I think it's getting to the over priced - that's just my opinion.  That said, I've had three neighbors in my subdivision alone list their homes for sale last year and all three sold in less than a day - the house across the street from me sold in four hours!  So there's definitely demand.  

Parking in "old Noblesville" is insane. So you may want to make sure whatever unit you look at includes a garage if you are looking closer to town center.  That said, it's beautiful.  There's golf courses, walking paths, a giant lake (Morse reservoir), you can see people rafting and canoeing down the White River all summer.  The high school is virtually brand new.  

I agree, especially if you are looking for those "run of the mill, family homes" with laminate counters, decent floors, standard white appliances.  You know, your typical home to lease to a young family or empty nester family.  There's a glut of homes with granite, 4 bedrooms, etcetera - what I consider high priced homes, great for that family that is growing and wants something with all the trimmings attached, but not what I am looking for.

Even worse is trying to find something that needs a lot of TLC and a seller who is reasonable.  You can find one or the other down here it seems, but rarely both.  

@Cole Simpson, 

Thanks for the reply.  So basically it's one of those fuzzy math things.  Literally you are in debt on the property, but since the tenant is paying enough in monthly rent that you can pay all the expenses with money left over, you ignore the debt from the calculation and just look at the money in/money out calculation to determine percentage profit?

So in a very real case:
- House down payment: $20,000
- Repairs: $30,000
- Rent Received: $12,000 (year)
My return is 12,000/50,000 or roughly 24%? (year one)

IMHO, if it were me?  I would be calling the PM daily asking them to upload or mail me copies of the receipts if only so I had something to give my accountant (a statement from the PM showing repair costs is not the same as a receipt from the company that installed the HVAC system!)  

Once you have that, you can contact the company directly to get the warranty information, including most likely a card to fill out with the manufacturer to register the product.  

If the PM refuses to copy you on the receipt, that seems really shady to me.  I'd be looking for a new PM company if that happened to me.  

Okay, if this is the wrong forum I apologize.  

Anyway....

I keep reading articles saying that you get better returns if you take out a mortgage.  Of course it makes sense that a $300/month profit on a $20,000 investment is a higher rate, but you still owe $80,000 (assuming 20% down) so you're still not really making a profit at all mathematically.  That profit doesn't start until the debt is eliminated, unless I am really missing something big.

Also, the idea of tax deducting interest is great if you have to have interest, but is it not better to just not have interest to pay at all?  

Now understand, I get that almost all of us will have a mortgage at some point in time.  It may be exceptionally wise to take $100,000.00 and put 20% down on 5 different investment properties instead of buying one with all cash even.  That gives you risk avoidance as the odds of all five being vacant at once is a lot lower than having your only unit vacant.  Also with five properties, you can spread the cost of repairs out through the profit on five leases - but you're still in debt, you're paying interest which is costing you money regardless of tax deducting it.  Not that you shouldn't take the deduction.

So I guess the first question is:  If you have the chance to prepay your mortgages a little bit each month, and get out from under them saving 10s of thousands of dollars over the life of the loan - isn't that far better than the little money you'll save on your taxes each year?  

And the second question is: Should you really be looking at $3600 a year profit on a $20,000 down payment as your return, instead of looking at $3600+(Principle payments for the year)/$100,000 (full purchase price) as your return?  

Again, only doing this for a couple of years, so I might be missing something.