All Forum Posts by: Steve Cook

@Kevin Patterson A lot of great input so far.  As @Robert Leonard mentioned, I primarily use CAP rate to evaluate performance between similar types of properties, in my case, SFH's in Indianapolis. I don't think CAP rate is very powerful by itself, but when you combine it with cash-on-cash, rent to value, debt coverage ratio, etc., you really start to get a sense of how a property will perform vs. another. Here is an example of three of my properties and how I would use leverage those metrics to evaluate comparative performance.

@Rodney Kuhl The properties are on Arquette and English Oak, respectively.  Arquette is definitely a C class property, but by no means in a rough area.  English Oak is a B and in a nicer area, comparatively. 

Hi @Rodney Kuhl One of my properties is very close, 42nd and Edmondson.  The other two of my properties are also off of 42nd, both between Post and Mitthoeffer.  

@Mike D'Arrigo Hi Mike!  Hope all is well.  I do think it's important to travel to your target area and I do have a trip out there on the books, the last couple months have just been crazy and prevented me from doing so.  

@Ben G. Very good point on the neighborhood differences, Indianapolis can vary tremendously from street to street.  With that said, I've successfully bought three properties without having traveled to Indy yet, all in the Lawrence township.  I've made this work by having a fantastic Broker and Property Manager who are both investors and know the area inside and out.  I've sent them  properties that looked great on-paper and they've told me to walk away based on the area.  I think for investors who are out-of-state it definitely pays to do your research, but more importantly to have someone that is representing your best interests on the ground.  

A small update.  I've talked to my current lender as well as a portfolio lender, who I was referred to by my Property Manager.  It doesn't sound like this strategy will work with a Freddie / Fannie loan, since you'd be over leveraged by using a loan to secure a loan.  

The portfolio lender said that since I've only owned my properties for a couple of months, they would need to see a longer track record of solid performance before deciding to take on that risk.  The fact that I'm not local also doesn't help.

What he did mention is that there might be an middle scenario, where I put 10% - 15% down and can then use a line of credit  to fund the remainder, even this strategy would drastically accelerate my acquisition strategy.  

Stay tuned. 

I couldn't agree more, I learned that lesson on my first place, where I sold shares through my e-trade account to fund the purchase and had to send them proof of the e-trade transaction, proof it hit my checking account and they proof of transfer to my real estate account, etc.  

@Aly W. Very interesting point.  On my first three properties the lender was VERY diligent in tracking the source of all major deposits from the preceding two months.  

@Tom S. No problem on that front.  To give you some background, my target investment is sub-$60K and I put down 25% to reduce my closing costs.  My typical investment is $15K down, $2K in closing costs + brokerage fee, and $4-5K set aside for rehab.  

My point was that, it takes me about 6 months to save $20K in cash based on the income from my job, meaning I'm saving $3K / month on average and hold no consumer debt.  This is excluding any cash flow from the properties.  My lender is also confident in my financial profile as I have made large investments into my 401K and equity portfolio.   They are comfortable lending me up to 10 properties, the maximum allowed by Freddie / Fanny. 

@Jeff S. @Paul S. 

Thank you all for the insightful comments. Jean, you're exactly right, this would be a LOC, not a HELOC as I don't own a primary residence, San Francisco prices are crazy! I also understand that it would be 'difficult' given my length of experience, but it sounds like it's possible, meaning the balls in my court to convince someone to lend me the capital.

What is not clear to me is whether or not an underwriter on a Freddie / Fanny loan will approve the loan since the source of funds are from another loan, this is effectively a zero % down funding strategy and the loan isn't secured against an asset like it is in a HELOC.