2017...how well did you do?

[bjl584]

Like any leverage, it can help or hurt. If the units can't be rented, there will be serious problems with this technique. A lot of people did this a decade ago, and some got burned badly. Maybe this time will be different.

Some people will still get burned. The difference between 10 years ago and today is that some lenders would do these deals with 0 down. People were leveraged up to their eyeballs. At least now, 10% down is pretty standard. At least investors have some equity in their properties.

[disneysteve]

Some people will still get burned. The difference between 10 years ago and today is that some lenders would do these deals with 0 down. People were leveraged up to their eyeballs. At least now, 10% down is pretty standard. At least investors have some equity in their properties.

10% is sure better than 0%, but there's still some serious leverage there. Look at ndwilli6's situation. He has mortgage debt of nearly 8 times his annual income, and he's looking to take on even more by buying additional properties. There's a lot of risk there. I'm not saying that's necessarily bad, but it's certainly not something everyone would be comfortable with.

[bjl584]

10% is sure better than 0%, but there's still some serious leverage there. Look at ndwilli6's situation. He has mortgage debt of nearly 8 times his annual income, and he's looking to take on even more by buying additional properties. There's a lot of risk there. I'm not saying that's necessarily bad, but it's certainly not something everyone would be comfortable with.

Yes. Using leverage is the name of the game. But, most advocate against too much leverage. I don't know the rule of thumb off the top of my head, but at some point a lot of investors will put the brakes on, so to speak, and try to pay down some of the mortgages before expanding. That, or they will sell off some of the properties, hopefully take the appreciation, and roll the proceeds into something newer, larger, better. That is where a 1031 exchange comes into play. Basically, a 1031 allows someone to take profits from the sale of an investment property and roll it into a new property without tax consequences. There are stipulations and time limits, but that's basically how it works.

[disneysteve]

That, or they will sell off some of the properties, hopefully take the appreciation, and roll the proceeds into something newer, larger, better. That is where a 1031 exchange comes into play. Basically, a 1031 allows someone to take profits from the sale of an investment property and roll it into a new property without tax consequences. There are stipulations and time limits, but that's basically how it works.

And that's all well and good, until something happens and the whole house of cards comes crashing down. One market correction or spike in unemployment or another housing crash and all those investors leveraged to the hilt lose their shirts, just like last time.

[Gailete]

Not really.
Commercial lenders or lenders geared to lend to real estate investors aren't looking at debt to income ratios or credit scores. They are looking at the property itself as an income generating entity. After you own a property and can prove to said lender that it is generating positive cash flow, the lender will actually view it as income, not debt. Commercial loans are structured differently than residential ones. That's how investors finance multi-unit complexes. The more doors the better as long as you can raise the capital. A lot of investors will buy the properties under a LLC, so their personal assets won't even come into the equation.

The best part about doing a cash out refi, is that it is not a taxable event. You can buy a cheap property, put some work into it, find a lender to reappraise it, and take the profit and do with it as you please without taxation. Usually, an investor will take it and use it as a down payment on another property. Leverage used in this manner can be a very powerful tool. This is how an investor can own so many properties in such a short time at such a young age.

Well that certainly makes more sense. If we did that, say with the property we just about have paid off, we could take that income tax free, and then just start making payments again paid for by the tenants rent? We wouldn't use a regular bank? Can we still turn around and sell it whenever we wanted?

Not that we are thinking about doing it, but I know that quite a few of us here have one or more properties. Making money on them without having to sell them sounds great, but eventually or over time that money needs paid back. I think he was talking about doing a re-fi multiple times on the same property, sounds like the lending company would be losing money on this scenario.

[bjl584]

And that's all well and good, until something happens and the whole house of cards comes crashing down. One market correction or spike in unemployment or another housing crash and all those investors leveraged to the hilt lose their shirts, just like last time.

If unemployment spikes, or if you are in an area with mass exodus, then yes, you end up with a bunch of vacancies, and you might not be able to service your mortgages anymore. That's when having a lot of equity or owning property outright can save you from ruin.

[bjl584]

Well that certainly makes more sense. If we did that, say with the property we just about have paid off, we could take that income tax free, and then just start making payments again paid for by the tenants rent? We wouldn't use a regular bank? Can we still turn around and sell it whenever we wanted?

Yes. You can do that. You could use a regular bank, maybe. But, a lender geared towards investors would probably give you more favorable terms and less hoops to jump through. You could sell if you wanted to. It would just be leveraged more and you wouldn't walk away with as much in your pocket.

[ndwilli6]

Well that certainly makes more sense. If we did that, say with the property we just about have paid off, we could take that income tax free, and then just start making payments again paid for by the tenants rent? We wouldn't use a regular bank? Can we still turn around and sell it whenever we wanted?

Not that we are thinking about doing it, but I know that quite a few of us here have one or more properties. Making money on them without having to sell them sounds great, but eventually or over time that money needs paid back. I think he was talking about doing a re-fi multiple times on the same property, sounds like the lending company would be losing money on this scenario.

No, I'd never do multiple re-finance on same properties. These are all different. Buy low. Rehab. Then refinance.

[ndwilli6]

Yes. Using leverage is the name of the game. But, most advocate against too much leverage. I don't know the rule of thumb off the top of my head, but at some point a lot of investors will put the brakes on, so to speak, and try to pay down some of the mortgages before expanding. That, or they will sell off some of the properties, hopefully take the appreciation, and roll the proceeds into something newer, larger, better. That is where a 1031 exchange comes into play. Basically, a 1031 allows someone to take profits from the sale of an investment property and roll it into a new property without tax consequences. There are stipulations and time limits, but that's basically how it works.

That's the plan when I sell two of my rentals this year. Tenants are already working on getting things situated. I'll use a 1031 to roll it into a new property (looking to go big with multi-family small apartments 8-12 units).

[ndwilli6]

Not really.
Commercial lenders or lenders geared to lend to real estate investors aren't looking at debt to income ratios or credit scores. They are looking at the property itself as an income generating entity. After you own a property and can prove to said lender that it is generating positive cash flow, the lender will actually view it as income, not debt. Commercial loans are structured differently than residential ones. That's how investors finance multi-unit complexes. The more doors the better as long as you can raise the capital. A lot of investors will buy the properties under a LLC, so their personal assets won't even come into the equation.

The best part about doing a cash out refi, is that it is not a taxable event. You can buy a cheap property, put some work into it, find a lender to reappraise it, and take the profit and do with it as you please without taxation. Usually, an investor will take it and use it as a down payment on another property. Leverage used in this manner can be a very powerful tool. This is how an investor can own so many properties in such a short time at such a young age.

Exactly. I purchase through my business (receive a line of credit), rehab, then refinance and receive funds because of it (of course after its rented). I then reinvest those funds into an additional property. And, continue the cycle. It's been working great. And, it doesn't hurt that I manage my properties myself.

A lot of people look shocked when I tell them my age and how many properties I own. I'm an aggressive saver. Read. Read. And, read. Research. Research. Research. I never new any of this existed until I started going to investor meetings, and BIGGERPOCKETS.

[ndwilli6]

And that's all well and good, until something happens and the whole house of cards comes crashing down. One market correction or spike in unemployment or another housing crash and all those investors leveraged to the hilt lose their shirts, just like last time.

This is why you need to plan. That is why I plan. With $86k I think I'm fine. And, I'm saving over $3k monthly now. Even if a tenant decides to leave the most I'll lose with any property is $706.00 monthly (which equates to $8,472.00 in a year). With two new heating & air conditioning units/flooring, electrical work/deck it shouldn't be much maint even if sitting empty, and it's in one of the best neighborhoods in my city. All other mortgages are cheaper...besides my personal.

[LivingAlmostLarge]

That's very impressive and probably the way to build wealth fast. Do you think you'd be making as much without being a realtor? Or is that part of it? Can you just do it investing?

[Singuy]

Just tallied up my wife's and my expenses. YIKES

We spent 66k without the solar panels
105k with solar!

We need to pull our @#$$ together for 2018.

[ndwilli6]

That's very impressive and probably the way to build wealth fast. Do you think you'd be making as much without being a realtor? Or is that part of it? Can you just do it investing?

Do you think you'd be making as much without being a realtor? Absolutely not. Although it is expensive to be a realtor it does pay off when I make offers.

I "technically" only invest. I refer buyers out to other agents. I like to focus on own personal properties (because of equity/cash flow)...basically I like receiving a check once a month rather than a one time payment.

[rennigade]

Just tallied up my wife's and my expenses. YIKES

We spent 66k without the solar panels
105k with solar!

We need to pull our @#$$ together for 2018.

Do you have pics of the solar panels. Id be curious to see what $39k in solar panels looks like. Probably covers your entire roof.