All Forum Posts by: Stephen Shelton

After listening to dozens of podcasts, and reading numerous real estate investing blogs and books I'm concerned that the following will doom me to failure.

I'm not interested in traveling and I don't salivate over quotes.

I've noticed repeatedly that real estate investing masters love nothing more than going on a vacation, and it just doesn't do it for me. Traveling to me is a PITA that I do sparingly.

And quotes? They're often interesting and sometimes pretty deep for their brevity, but ultimately they are as forgettable as a Justin Timberlake song. I was never inspired by those motivational posters popularized in the late 90s either, and instead had many a belly laugh at the demotivational posters that they inspired.

Am I just too boring and jaded to have success?

Correct me if I'm wrong, but a nation-wide collapse of housing prices like we saw in 2008-2009 is exceedingly rare historically, correct? Isn't it more likely that corrections result in a substantial slow down of the values?

Of course if the Community Reinvestment Act is still active and with banks now knowing with certainty that Big Brother will be there to bail them out I can see it happening again.

Fortunately with the cost of borrowing money on the rise and the collapse still being so fresh in people's memory it seems like that will help temper the situation. 

For what it's worth, the prices in my area of Florida have gone up a lot in a few years but prices still seem a lot lower than 2007.

I've visited about 6 local banks and credit unions in the past week, and I can say this about HELOCS:

Shop around LOL

The diversity of options is impressive. I thought they'd be a commodity that would have little diversions from the norm but they don't. What I've found is:

1)  The percentage you can draw varies from 70% to 80%, and some max out at $50k to $150k.

2) Some charge annual fees and some do not.

3) Some reduce your interest rate simply by having a checking or savings account with them (TD Bank only required $100 for a checking)

4) Some (in my case 1) only allowed personal residences. Honestly being so close to the 2008 crash I thought this would be more common. This was BB&T btw, and honestly it's refreshing to see a bank err on the side of caution.

5) Some don't do HELOCS at all. I really like my bank because it never gives me grief, I never get BS charges, and Rose always says "Hi Steve" when I deposit rent checks, but they don't do HELOCS at all. 

6) Some are simple; simple to the point of making me concerned I need to check the fine print while others are so complicated I needed a drink after being told the rules.

7) Some require a paid appraisal.  Some are happy with a computer estimate up to a certain amount (i.e. $100K), some allow either a free appraisal based on the appraised value at the county appraisal office or you can pay for one. 

8) APRs can be fixed and while they were always higher for investment properties, one quoted me only 5.69%.

9) Some charge points, and some eat those charges in certain situations too like by requiring you keep the HELOC open for a certain amount of time.

I started the process last Friday and will continue Monday. I'm checking a few local credit unions and have already found they have widely different policies.

One universal reaction so far is that the property I'm trying to use has a personal, and therefore unofficial, loan on it with family. No one cares. So long as it's not a "real" mortgage they just brush it off as irrelevant. I guess this is because in the eyes of the law if the proverbial #2 hits the fan the courts will see them as first in line for repayment.

Two of my properties have mortgages at about 1/3 their resale value while the 3rd apparently appears fully owned in the eyes of lenders. It's such an awesome position and I feel like Property #4 is just a couple months away.

Old thread I know, but I'm in Florida and I looked into this on Friday at 3 different Credit Unions. At one the proper manager was not available so I won't know the rules until Monday, but the other two both allowed rental properties 

I also noticed the rules varied widely. One, Space Coast, didn't seem to have many rules aside from maxing out at 80% and they required an official appraisal at my expense for a HELOC over $100k. He didn't recommend this because I would only be able to pull $108 due to the 80% cap anyway.

The other, Fairwinds, had a $50K max for investment properties and a percentage cap lower than the other that I can't remember (60% maybe?) but the problem was they had complicated rules for doing it that honestly confused me. For example I had to take $15,000 out immediately but could return it in 1 month if I chose (why? I have no idea), and the money had to be paid back in buffalo nickles on the first eve of a waning gibbous or something. At any rate my thinking is if it's that complicated it's probably not the best because who knows what other surprises exist.

Spoiler alert: this is pure silliness with a dash of depth.

Some were called to be doctors, innovators, engineers, or sheep wolves to protect us all. I now believe I was born to be Stanley Roper.

Growing up I absolutely loved Three's Company. I still do, and I spent an unusual amount of time pondering Mr. Roper's life: he appeared to live comfortably by renting out a series of apartments and even managed to sell that statement complex and buy a house and live without a traditional job. How many rentals did he have? How much did he gain by selling it?

I envied Stanley Roper.

Flash-forward: remember Perfect Strangers? I remember this series fondly as "Coooosin" Larry frequently acted in haste to better himself while the humble Balki would stop to smell the roses. I remember the basics on the long-term story arcs, but aside from the bibby-babka show I don't really remember episodes... except one. Larry bought a house to flip (I don't remember if that word was used then) and had to finish in 30 days. At the last minute he decided to increase value by adding a chandelier, it almost detailed the project, hilarity ensued, and in the end they got it installed. Coooooousin Larry learned a valuable life lesson on being happy without being so aggressive.

Why the h#ll do I remember this episode so vividly when I haven't seen any episode in a quarter century? I think it's because I've been built for this industry. I just like this stuff.

I remember pondering on investing in real estate around 1999, and again in 2008 but (LOL) it seemed like the stuff out of sitcoms and not reality. No one "really" invested in rental properties, right?

Ugh. If I only took it seriously in 2008 I'd be a tycoon today lol.

Do I really have this correct:

* A HELOC is like a giant credit card with a credit limit roughly 80% of the equity in a property.

* I can act like a cash buyer.

* Typically only costs are an initial home property appraisal and interest on what you use.

* If approved for a HELOC, and it is never used, the only cost was the property appraisal.

The downsides include:

* Requires the basic financial discipline to see the HELOC as a credit card and not a gift card.

* In a housing crash the lender may freeze the credit line or demand payment.

* The above can be alleviated by paying back the HELOC with a traditional mortgage once the home is repaired.

Forgot to mention one of the main reasons I want to do this:

Is a business structure the only and/or best way to get a loan that draws from the combined equity of the 3 houses?

Also I'm in Florida if that matters.

I own 3 SFR rentals and would like to continue growing. Currently they are not setup under a business entity, but I think it's time to get this done before buying Property #4. After completing Property #2, my CPA said a few things that now appear time to resolve. The big one was his statement that once I hit 4 properties I become a "professional landlord" and "things" change. I'm going to setup a meeting this week and I was hoping to get feedback on the question list I have come up with.

Thanks for any advice

Steve

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Is it time to use an LLC to protect the assets?

Would an appropriate structure be to have each house to be owned by its own LLC and then have an umbrella LLC own them all?

How would creating LLCs impact the houses’ mortgage, insurance, title, and tenant lease?

Would each house need its own bank account, security deposit account, and credit card in this setup?

• IF YES: Should I terminate my existing business related accounts and create brand new accounts with new account numbers for each house to avoid confusion with the old accounts?
• IF YES: I like using a CC to pay, but how would I get a line of credit on each property? My last credit score: 805, but would “the industry” really allow me a card for each house and my own personal card?

I was once advised here that owning a 4th rental property changes things and that I’d be considered a “professional landlord” at that point.What does this mean?

Does that professional landlord status occur if the homes are owned by LLCs and not me?

When I was a student in the 90s I remember there was a lot of whining from the boro's businesses related to the perception that the students were not patronizing the local businesses well enough.  It was still a bit of a hike to walk into the core of the town from the university, and the town has little parking. What parking is available generally requires paying.  We could either do that or hop onto 202, and have access to a big mall with ample parking and 0% sales tax (Delaware). Customers go where they are wanted!

This law seems to be continuing the town's tradition of expecting to get the students' money while hoping to never see the actual students.

It's also an interesting point you bring up about the school building a lot of housing. I hardly recognize the campus anymore when I see it!  Universities are largely money vacuums (hence the explosion of worthless and easy majors) so it makes complete sense that the school would work with the local government to driveup the cost of private housing.

I'm so glad I've never made an alumni donation to that school.

BTW around 1993 a book store opened up next to the school offering cheaper textbooks and higher resale values. The school threw a fit and even launched a guilt campaign to shame students into supporting their school's bookstore.