All Forum Posts by: Seth M. Jones

I'm in a very similar situation as you, lean FIRE, 6 doors, and now I'm considering doing the exact same thing... I posed a similar question last week and was a bit surprised by the pro leverage crowd basically telling me that paying off a mortgage is a complete waste of money, when all of the money could go towards acquiring more with leverage. I imagine that shortly you will get similar responses...

This especially surprised me, because as a Mortgage Broker I am pro leverage, but also see the value of freeing up your DTI (debt-to-income) ratios, and using a HELOC to accelerate your home acquisition process. The main thing that I think most investors don't properly account for is the cost of acquisition when using traditional financing. Bottom line, when using a HELOC you become a cash buyer and cut your acquisition costs in half. Additionally, it is perfect for temporary financing, and then you could refinance the property anytime that you saw fit, or aggressively pay down the HELOC to have very strong cash flow. It all depends on your risk tolerance and comfort with leverage, but I think that what you are thinking is a killer strategy that more people should take advantage of.

Greatly appreciate all the feedback guys. I hear the answer to my question loud and clear... acquire more properties regardless of the market cycle, as long as it cash flows and it is a good deal. Put the additional cash into the next property that makes sense. Thank you all!

Great points Thomas S., I haven't been looking at it that way, but what you say definitely makes sense. Joe Villeneuve thank you for your added perspective... Thanks everyone. My primary question revolves around strategy in regards to the market cycle... however it sounds I'm definitely hearing a strong consensus that the money shouldn't go towards paying off the mortgage. 

I generally am of the same mindset as that. I spend a lot of time studying the markets, especially in Central Florida, and I've developed the opinion that we are about 14 months out from a buyers market. With that thought, I've been thinking about paying off a couple mortgages in order to free up my ability to really go all out in the next buyers market, utilizing a lot of leverage. Does anyone have any input regarding the original question as it relates to where we are in the current market cycle?

I'm really curious to get opinions from other buy and hold investors with numerous financed properties in their portfolios. Currently, I'm in a healthy financial position, and I have 6 rentals that are all cash flowing, appreciating and under control. These are single family residences, and 4 of the properties have Conventional mortgages. Based on where we are at in the current economic cycle, I'm interested to hear what other buy and hold investors are doing or would recommend? I'm debating on whether I should be targeting additional investments currently, or (due to the stage of the economic cycle) shift my focus towards paying off mortgages. Another thought I had, but am less inclined towards, is stockpiling cash for a shift to be able to capitalize on more opportunities if there is a shift. I'd love to hear thoughts and opinions.

David Greene, Scott Trench, Brandon Turner, I would love to hear any feedback you might have.

@ Tyler Gibson, I'm a local investor and have had troubles with my current property manager, who is managing 6 of my properties. Who is it that you'd recommend?

Minh, I'm a FL based mortgage broker, and I understand where you are coming from. It seems to me that the individual you were talking to didn't:

1) Give you ample time to ask the necessary questions to give you peace of mind

2) Properly educate on WHY she needed certain information

I'd be happy to connect with you when to further explain, but basically she was looking to build a two-year work history for you. If you don't have a two-year work history, then you'd need to use your schooling and any internships that you might have had to fill a two year period in a way that would be acceptable for a lender.

Regarding closing costs in Florida, there generally 5 distinct types of closing costs:

1) Taxes (transfer taxes imposed by state, and taxes to record information)

2) Insurance (1 year prepaid upfront, plus 3 months of escrows)

3) Inspections (Survey, Appraisal ect.)

4) Title Costs (Florida generally uses Title companies to close, and they handle all paperwork to transfer title and insure your TItle)

5) Origination Fees (only charged by certain lenders to increase profit)

Frankly, 6% is extremely high for closing costs in the state of Florida. 3% is a good rule of thumb when calculating closing costs on most conventional loans. This does vary however, and I'd be happy to explain further if you'd like to connect. 

Welcome Joseph! It is always great to meet like minded individuals. I'm a local real estate investor and Mortgage Broker based out of Port Orange. I'd be happy to connect. I wish the best for your in your endeavors, and perhaps we can be in touch. 

I've dealt with a similar situation before in the past. I think you've got a lot of great feedback on this, but I'd to add one tip that I feel is critical. I highly recommend interviewing other property managers prior to making a decision on how to move forward. I'm not sure what your market is like, however many markets (including mine) have a poor selection of effective, quality property managers. Before moving forward on any decision, I'd recommend having your plan B lined up and ready to go. 

Are you managing the property or hiring a manager? What needs replaced within the first 3 years? I would recommend factoring your Maintenance, Cap Ex and Vacancies into the deal analysis on the front end. If it is currently fully rented, how frequently do those units turnover? I personally would look at this and immediately either turn utilities over to tenants, or build it into the rent. Then I'd take my expected gross, and take off 25% off the top (maybe more or less depending on your analysis) for vacancy, cap ex, maintenance and management. $2900x.75=$2175. It would scare me to stack a HELOC and a regular loan... but I may be more conservative than you.

Just wanted to share a few thoughts, otherwise it sounds like you've done all of your due diligence. Good luck!

For my first investment, I was in a similar situation and I chose to withdraw from my IRA to move forward on an investment purchase. Besides marrying my wife, it was the best decision I ever made.

Daniel, especially if you are just getting started, I highly recommend Scott Trench's book, Set for Life. His insights directly address your question, and I think it would really help you not only in making this decision, but help build a foundation for your personal investing journey.

Beyond the book recommendation, I have worked in the finance industry and you should know that your advisor doesn't get his fee income when you no longer have your funds under his management. His advise is going to have a natural bias. I recommend briefly picking the brain of an accountant in your state as to the tax implications of withdrawing from your IRA to invest in real estate. I think you'll find that it isn't as bad as it was made out to be.

I hope this feedback was helpful. Warmest regards,