Between the time that I bought my first property and my second property was 2 years and 2 months. For many people, this may be really fast. And for others, this is abysmally slow. I sunk nearly all of the money that I had, aside from $4,000 cash and a 401k, into my first property. So I didn’t have a ton of money set aside to purchase the next one. But because I had done some repairs and fix-up on the property, I actually had a line of credit that I set up against the equity after the first year.
The bank allowed me to take a HELOC or Home Equity Line of Credit against the equity in my house to the tune of $25,000. So I had plenty of money to work with. A HELOC is like a credit card, except that the money you borrow is secured by your house. Especially today, with historically low-interest rates and a very favorable lending environment, some banks and credit unions will allow you to take out a HELOC for up to 95% of the value of your home, minus the amount that you already owe. These loans are usually at a very low interest rate as well.
HELOCs are fantastic, and a great tool in the investors’ tool belt. This money can be applied towards the down payment on another property, unlike credit cards. They also tend to have very low interest rates as well. The interest rates are usually variable, but much cheaper than other financing options. I was able to secure an introductory rate of 4.99% for the first 12 months on a 95% LTV loan.
The point is, I had money. I also was committed to the process of buying rental properties and had sufficient knowledge in order to make things happen. So why did it take me so long?
Have Money, Need House
In between the time that I acquired the HELOC and the time of the 2nd house purchase, I experimented with several different investing strategies. I spent a ton of time setting up a partnership to flip houses in Denver with 2 other investors. I was so focused on using this money to flip a house locally that I was hesitant to allocate it to a different strategy. The problem is, I wasn’t actually making any money flipping. We hadn’t started a single project. I allocated this money in my mind to a project that was clearly not going anywhere.
The more important issue was that I was scared. I could clearly see that we were not any closer to flipping a house, but yet I hesitated on spending the money. The reason that we were not successful in flipping a house was that we couldn’t find a good deal on a property. The logical solution is to find a house to flip, but this usually requires money or time. And I didn’t want to spend either.
A Change of Strategy
Things turned the corner when I got serious and committed to a different strategy. Flipping property in Denver seemed out of reach due to the limited funds that I was working with. So I set my sights on a new strategy and decided to BRRRR houses in Kansas City.
The lower price point made things seemed much less scary. And the properties fit into my goal of producing cash flow. A win-win. In April 2019 I drove from Denver to Kansas City and met with several people. I found a local investor friendly real estate agent who was willing to look at properties and make offers on my behalf. I also found a contractor that seemed knowledgeable and trustworthy. And lastly, I met with several wholesalers in order to get a lay of the land.
I wanted to know where to buy properties, where to avoid, and understand my competition in this market. I left the trip feeling confident. My team was in place, and I was ready to rock and roll on buying some KC houses!
Again my strategy proved to be less than ideal. It turns out that Denver is not the only city in America to be experiencing a real estate boom. And it turns out that other people both locally and out-of-state figured out that Kansas City wasn’t a half-bad place to buy rental real estate. So looking on the MLS everyday at new listings produced very little for me.
In the end, a property came through a relationship that I had developed several months ago in Denver. Through several referrals, I was connected to yet another wholesaler in the Kansas City area.
Someone Take My Hand!
I’m not sure if it was because I came through as a personal connection, or because I’ve been sold a bill of goods, but this wholesaler was very persistent in helping me to close the loan.
There were some things about the transaction that initially made me wary, but in the end, I decided to take the risk and purchase the property anyway. It all happened in the span of a week or so, and the process was rather stressful. I’ve been committed to the process theoretically. However, when it was time to consider putting more than 4 months of pre-tax salary towards a property though I realized that I was a little more risk-averse than I thought.
I’m fortunate that if everything goes south that this won’t wipe me out. I won’t end up bankrupt or homeless in any case. Time will tell if this property ends up being a stud or a dud. I’ve done all of the research to the best of my ability, and now is the time to put words into action. I’ll, of course, follow up with an update.
Part of the reason that it took me so long to make this next purchase is two-fold. First, I didn’t have an appropriate strategy given the amount of money that I have to work with, and the amount of work that I was willing to put in. More importantly, however, I was worried. I was letting self-doubt and fear creep in. I don’t know if this property will end up being profitable, or if it will simply break even. But if I knew for certain that things would work out, I would live my life differently.
We tend to be overly focused on the downside, and not the upside. I’m not saying to be reckless, but realize that the super safe path is likely not the path with enough growth to achieve your wildest dreams. Remember that you’re just as good as anyone else and that no matter what happens, you’ll be able to handle it.
That’s all for now. Until next time.
To Your Success,
Tim
