Laugh away because for any real estate investor this would be shocking how some people can be so ignorant. But who cares. I’m only 17.
I was thinking about rental property and how some people claim that is the way to go. Well I always thought this way. Why would I buy a $150,000 house to rent out. It would take so long for me to get back to just being EVEN. I’d be long dead. Even as I was starting to learn other types of investing I never considered anything but this much. Then I was honestly disgusted with myself when I realized what the actual case was… Growing up I guess but realizing the whole deal with the $150,000 being invested not spent and realistically being able to pull the $150,000 out of the house if you wanted to… I don’t know why I’m posting this. Maybe in a couple years it’ll show how far I’ve come.
The REAL advantage is buying that $150,000 house for $75,000 and using NONE of your money. That’s a little misleading, you DO use your money for a down payment and maybe even to rehab it. Once it’s complete and rented you just refi the now rehabbed home and pull ALL your money out!!
Your tenant PAYS OFF the house for you, AND should be putting something in your pocket every month!!
THAT and the eventual appreciation, make real estate almost unbeatable.
Also, when the tenant pays off that 150k house, you can refi at 60 - 70% LTV and pocket all that money and let the tenant pay it off again or you! Now think if you owned 15 properties and did that. If you pull out 50K from each property, that’s 750k tax free! It’s tax free becaise the money is a loan, not income. In fact, you get a tax write off from the interest on the new refi! :beer
My investment strategy does not include pulling money out with refi’s. I have literally seen investor after investor go belly up with this strategy. Eventually it seems to always catch up with them and they become more leveraged than what is manageable. You simply are taking on more debt with refi’s. In my opinion this madness caused a lot of the problem the market is experiencing now. I have bought from many of these investors. I hate this strategy. although I know it works for some. MY CASH is king, and I will retire without passing the headaches on to my daughter and or other kids who may come along who may have no interest in real estate.
This was after the houses had been paid off. While you can certainly do well with cashflow, pulling out cash from the equity CONSERVATIVELY and that is the key word. You can refi at 50% LTV and still have positive cashflow. If you have a situation where you have $1.5M in equity (10 properties worth 150K), you can bank 750K and still have cashflow. If you go belly up with 750K in the bank, you have a money management problem and more cashflow won’t fix this. That being said, I throw these figures out as very general figures. For me, 50% of the income would be for expenses. the remaining 50% would be for debt service and cashflow. I would not refi at a LTV that would not cover the debt service and give me at least $100/mo./unit positive cashflow. Whatever that # is after making this calculation is how much I’d take out. The property will dictate what I do.
As far as cashh out refi. I refi’d last year and pulled out 10K. There were no tax implications when I did my taxes this yr. Could you specify which changes?
My settlement costs were $1500. I paid off some bills and wrapped them into the refi.I took out the 10k and stuffed it in the bank for reserves and have never touched it. When all was said and and done, my monthly bills were reduced by $250/mo. and I had 10k more in my account than I did before. I only refi’d at 85% LTV. My settlement costs were paid for after 6 months.
Please tell me, how does one do a 10K CO refi, pay off bills to reduce monthly payments by $250 and still have 10K left in the bank?? Will this work for me too? I have a mountain ski lodge in Kansas I wanted to refi. :bobble
Well for me, I bought my 3 bed/ 1.5 bath cape for 105k in dec. 2001. I was lucky because the family was selling it after the parents died. It was in move in condition and needed nothing. Here’s what I did.
Gutted and turned .5 bath to full bath. $1500.
Built a 38’x14’ deck. $3500
Built a 8’x6’ deck in front. $500
Built a 12’x12’ shed. $1500
widened & repaved driveway $3800
180’ of stockade fence $1000.
I learned to do all the work myself except the driveway. That put my house at $175k after 5 yrs. When I refi’d at 85% LTV and cashed out with 10k. I paid off my car and some credit cards. I can’t recall the exact numbers but I remember when I ran the numbers, I was/am paing $250 less/mo. and have 10k in the bank. As long as I don’t touch the money I feel good about it. But basically, you have to run the numbers for your property for yourself. Just make sure you’re not overleveraged.