All Forum Posts by: Steve Cook

Hi Everyone,

After diving into real estate about 6 months ago, I've successfully added 3 properties to my portfolio.  Each property is successfully cash flowing and has a 1-year lease in place.  There is no major deferred maintenance, but I do keep a separate reserve fund of $5K to account for any vacancy or maintenance.  My monthly cash flow between the three properties is just north of $1,300 with a debt coverage ratio of 2.8x.  

My question is, with my current income from my day job and cash flow from the properties, it will likely take me another six months to save up the $20 - 25K needed to acquire my next property. I was doing some research and wondering if it's possible to take out a HELOC or revolving line of credit to secure a traditional Freddy / Fannie loan? I'm very confident I can continue to find properties of similar performance and the cash flow from the acquired properties would easily cover the additional loan. $20K at 4% translates roughly to ~$58 per month.

Very interested to hear if other's have done this before and have specific insight into my target area, Indianapolis.

All the best,

Steve

@Selina Stoller

Very helpful, thank you. I ended up taking @Shawn Holsapple 's recommendation and contacted Sean Clapp. Very knowledgeable guy with 25 years practicing real-estate law in Indy. He practically re-wrote a my purchase agreement and so far it seems like it was money very well spent. He actually had a ton of knowledge on the area I was evaluating and gave me some great feedback from a real-estate perspective.

Hi guys,

Planning to complete my first deal pretty soon and hopefully a couple more in the upcoming months. Yelp and searching BP didn't yield any meaningful results for a real-estate lawyers in Indianapolis, was wondering if any locals or other out-of-state investors had someone they could recommend.

@Chris Clothier

Would love to sync up when you're out here. @Haim Mamane Palman is a friend and has spoken highly of you. Will follow-up with you.

@Chris Clothier @Ali Boone

I spoke with a local lender in Indy who's willing to lend under $50K

Rate: 5.25% @ 20% with 1 point or 5.25% @ 25% with no points

Closing costs: $2,100 for title fees, appraisal, recording. etc.

They can lend at this rate for the first 4 properties, from 5-10 they require 25% down.

Potential increase in rate of .125% due to the small loan amount, effectively 5.38%.

A little higher than I had hoped, but ultimately still a very low rate historically, increasing the rate to 5.38% from 5.0% reduces cash flow by $11 / month.

@Shawn Holsapple Very interesting regarding the furnace. What about roof replacement, do they typically cost around $5K?

@Chris Clothier Appreciate your insight, thank you. I'll be back with more details on the lender and closing costs.

Regarding maintenance, we're on the same page, this is essentially what my investment would look like for the first 20 months, which is how long it would take to build up my maintenance reserve, 16 months if I incur no vacancy loss. Strategy is to direct all cash flow to a reserve account until I hit $5K at which point, cash flow will be redirected toward reinvestment.

Thank you all for the feedback, I think the main concern for me is that the property is reassessed and the taxes are doubled, which I have no control over. That alone reduces monthly cash flow by $51. If I also double the maintenance to 16%, the revised scenario looks like this, still nice to see that it's cash flowing. Based on some additional information, I've also increased my lending rate to 5% and lowered property management to 8% (my desired PM's rate).

@Ali Boone Confirmed that this property is in a low to moderate risk flood zone.

@Jerry W. I'm not an expert in Indianapolis, but have been researching which townships to focus on and this is in a good area in the Pike township, certainly not a war zone property.

@Josh C. I'd be interested to see where you're seeing 15% cap rates in Indianapolis in good neighborhoods for SFH's. After researching for the last couple months, I think duplexes might be able to create those returns in Indy, but I'm not interested in the increased vacancy risk and lower quality of tenant.

@James Syed Appreciate the response. Per my earlier note, I'm not planning on taking any of the cash flow out of the property until I've hit $5K in total reserve. If we did this on paper it's effectively a 38% maintenance reserve per month for the first 16-months.

@Ali Boone I'm speaking with a lender tomorrow who will lend under $50K in Indianapolis and deals frequently with investors. Great idea on the flood zone, I'll definitely look into that. Build year is 1957.