How do you recover your investment money on rental properties?

[fadi]

For the past couple of years, I've been doing owner financing and flipping. I am now leaning towards holding some properties as rental for long term investment purposes.

Those who invest in rentals... when you buy and rehab or buy in good shape, how do you recover your initial investment money? I am referring to the aquisition, repairs, and holding costs?

I can see couple of ways, purchase and rehab then do cash out refi or use private funds for few years then refi. Is that what you guys do?

[kdhastedt]

I was buying cash, fixing up and putting a renter in.  Then I would go to my local bank and re-fi based on the income stream of the lease and the appraisal against the fixed-up property.  THe bank would re-fi at 80% and I would get all of my cash out and repeat.

Keith

[brockovich]

Doing that on a limited basis works but eventually it catches up with you. 5 investors have gone belly up to the tune of over 100 properties in my area because they got over leverged.

[furnishedowner]

Get a blanket loan from your small local bank on your rehabbed, rented-out houses. Then you have money for more.

Or pre-pay principal each month to pay off your properties early. In my relatively low-cost area I try to pay all loans in 15 years even if I took out a 30-year loan. Then you can just enjoy the income, or sell and receive trouble-free note income.

FurnishedOwner

[John_in_NC]

I was buying cash, fixing up and putting a renter in.  Then I would go to my local bank and re-fi based on the income stream of the lease and the appraisal against the fixed-up property.  THe bank would re-fi at 80% and I would get all of my cash out and repeat.

Keith

diddo

[kdhastedt]

Doing that on a limited basis works but eventually it catches up with you. 5 investors have gone belly up to the tune of over 100 properties in my area because they got over leverged.

So don't overleverage...I refi at 70-80% of the ARV.  When I need to sell, I have 20-30% capital in the property.  BUT - you gotta buy low.  You make your money going in not coming out!

Keith

[fadi]

Well, I can refi yes. My main concern was how to pull the money out and sounds like that the way to do it. I just converted one owner financed home into a lease by forgiving late payment and agreeing to make it a lease. Won't refi it due to the low interest rate, but I will continue to buy sub2 and lease them out and refi them later. I am going to start looking into X-plex properties too.

[kdhastedt]

If you don't have one, I would find a flexible lender, tell them what you want to do, and see if they can accomodate.

Keith

[stevie-o]

The 2 I just bought are on owner financing with a 6 mos balloon. I went that route because it's easier to refi than to purchase, especially when you buy at big discounts. Then when I go to refi it's a slam dunk at 60% LTV.

[Dave T]

Quite a few years ago, I was buying with 90% financing.  Closing costs and downpayment combined were around $5K.  With a tenant in place, the property generated enough positive cash flow to pay me back in around four years. 

I never worried about getting my money back out any quicker.  I had a full time job that gave me investment capital while the renters paid of the mortgages on the properties I already owned.

After several years of appreciation, if it was time to sell a property, I would 1031 exchange from one property into two.  All the money from the exchange would pay the closing costs and downpayment.  Tenant rents would cover operating costs and debt service.

Just by starting with an initial out of pocket investment of $5K to buy one property, I have leveraged that into four properties over the years by refinancing and 1031 exchanges.  I guess it would be hard for anyone to believe me if I simply said that I purchased four positive cash flow properties worth around $600K today for just $5000 out of pocket, and I got all that back in positive cash flow in the first four years.

Would you believe me if I told you that I repeated the same process three more times?  Would it become more believable if I told you that I accomplished this over a 20 year timespan?

I guess my point is that rental property ownership is a slow road to wealth.  Don't worry about getting your intitial investment back quickly, it will naturally happen over time if you buy right.

My approach leveraged just $20K into $2 million in equity, but it takes time.  Patience is your friend.

[BrianA06]

With your 1031 you would buy multiple small properties instead of 1 bigger one?  I would think that more units make vacancy easier to swallow when you have one.

[fadi]

I do have full time job, and I do/did have the capital till I started leaving my investment in the homes. This has drained me big time and slowed my investments. I have been thinking of flipping a house and investing the profit in couple of rentals, but it would be much easier to take the money out and buy another one.

While rentals are long term investments, there are ways to speed the process out without having to wait 20 years to reach that goal.

[cooley5]

I use a Hard Money Lender to buy the property plus rehab expenses.  When you use hard money you have to buy at least 70% of appraised value.  This way you refi upto 80% right away and you have zero personal investment in your new property.  Profit becomes infinite 

[twintowers]

how do you do a refi right away when convential lenders typically require 6 month seasoning ?

[John_in_NC]

I use a Hard Money Lender to buy the property plus rehab expenses.  When you use hard money you have to buy at least 70% of appraised value.  This way you refi upto 80% right away and you have zero personal investment in your new property.  Profit becomes infinite 

Your crazy!
Get a Business LOC


My suggestion...
50 dollar balance transfer fee's on most of them, plus a 0% interest rate for the 1st year on many of them. If you have good credit (you better or your pissin in the wind) then large lines on these cards aren't hard. And if it takes you more than a year to get it fixed up, tenant in place, and REFI, your in the wrong business.

I can't believe more people don't do this.

Here is a link for ya.

http://www.fatwallet.com/forums/finance/750386?highlight_key=y&keyword1=business

how do you do a refi right away when convential lenders typically require 6 month seasoning ?

Not my bank.