Juniper Square, a technology company that helps connect investment firms with private capital to be used to invest in real estate, announced this week that it raised $25 million to help grow its business. “Our mission is to transform the world’s private capital markets through software,” said Alex Robinson, Juniper Square’s CEO and co-founder.



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Whether you’re already living in a house you own or you want to buy your first house and springboard it into a bigger portfolio, I’m hoping to provide some useful information to make this easier.

There are plenty of ways to do this—plenty of exit strategies and lots of different names used for it on BiggerPockets. You may have heard it called house hacking, live-in flipping, live-in BRRRR investing, etc. Basically, we will be discussing how take a personal residence and inject some creative element or added value to produce a profit when you exit. There are countless strategies to do this, and a lot depends on what type of starting resources you have access to. Even if you don’t have a lot of starting capital (like how I started), this is still very possible! You just need to find a deal that allows for a reasonable profit margin and be willing to get a bit creative.  

Know Your Leverage Options

Everyone starts out in different places. If you have never bought a house, then buying your first with a value-add is an effective way to get started. You learn the buying process, and you get to make your first purchase with an investor mindset: big advantage! If you already own a house, then you may have equity in it, or you may be able to refinance some of the cash out at a low interest rate. If you have a house that has equity but can’t grab the equity, now might be the best time to sell. Many markets are currently inflated, and if you’ve been living in it for two years, you get to take the gains tax free. There are lots of options available—make sure you take time to consider them all.

If you already own a home, you may have equity that you can borrow against. A home equity line of credit (HELOC) is like a credit card against your house. It’s set up using the existing equity you have in your house, which allows you to use the funds at your discretion. The best part is that, just like a credit card, you don’t pay anything until you actually deploy the capital. HELOCs are a great strategy that I highly recommend.

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To see where you may qualify:

  1. Use Zillow as a guide to see your home’s worth.
  2. Take that number and multiply it against 75% and 90%. This is the low and high of common HELOC loan-to-value (LTV).
  3. Take that new number and subtract your current debt service. This is how much you could be able to borrow in a HELOC.

For example:

You own a house worth $200,000.

You owe $100,000.

200,000 x .85 = $170,000 – $100,000 = $70,000 potential HELOC credit!

Other benefits include the option to pay interest only or very low origination costs.

Sometimes it’s better to do a full refinance than a HELOC—for instance, if you need to finance a property that will be difficult to get its own loan or if you have access to reliable income and the increased house payment is less of a concern than access to liquid cash. It’s also good to know that you can take out a HELOC and spend it on a house and then later convert that outstanding balance to a closed-end loan like any other. This is a fantastic option in situations where it can be applied usefully.

Related: The Real Estate Investing Strategy I’d Recommend to Newbies (As a Seasoned Investor)

Viewing a House as a Financial Transaction

Lots of people are emotionally afraid of debt. We live in a society where the word “debt” has a highly negative connotation, and people rarely get explained all the benefits. Now, I’m not saying that debt doesn’t come with risk—it does, but risk is something that should be managed, never feared. The point is, don’t fear using leverage to move forward where you can. Use your resources effectively so they turn a profit. You don’t want to over-leverage or mortgage everything possible in order to get ahead, but realize that leverage can increase your growing power significantly when used wisely. Emotions make terrible debt decisions.

In addition to emotional fear of debt, we also suffer from emotional attachment to our homes. People feel compelled to “love” their house, but house hacking requires sacrifice by definition. It means you’re willing to buy and live in a non-retail house, that you’re comfortable with rehab going on day-to-day, and that you want the house to make money primarily—it’s not your dream home. I always try to remember this great quote: “Never buy a home, only a house.”

I lived in my house hack for about three years. It wasn’t terrible by any means. For people looking to buy “starter homes,” this is probably not the path for you. But making a little sacrifice can be profitable, and it’s good for the soul!

Knowing your home is a financial transaction from the start also helps restrain you from doing unnecessary improvements. Maybe you want a glass enclosure shower, but you know it’s not going to increase the rent, and you’ll never get your money back if you sell it. If that’s the case, then restrain yourself! If the point is to leverage profitable properties into a larger portfolio, then keep your eyes on the long game. There will be plenty of time for luxuries and amenities; don’t get caught up tricking out your rental property.

How I Did It

My first house was a lousy retail purchase that I made no money on. (Still own it and still don’t make money on it!) That deal taught me that buying homes at retail price doesn’t make money. I needed to buy something underpriced or distressed. So we started looking, and before long, I found a foreclosure that I was able to move into while still using an FHA loan. After 18 months and a little rehab, I had a house that was worth quite a bit more than I paid, and many homebuyers had dismissed it because it was a foreclosure. In reality, the house was not in bad shape at all—it was a perfect house.

The original home price was $54.5k. I put $3,500 down and another $3,000 into it over my first year. My wife and I made a little sacrifice to move in this house—it certainly wasn’t brag-worthy, but when it later appraised for $115K, we knew to refinance it immediately. We pulled out some of the created equity and got a HELOC to tap into the rest. So, my $6,000 investment had made $60,500 in under two years. Not bad for a first deal, especially when I was mostly winging it. This means if you’re diligent and focused, you can do a lot better.

Some of the details here are important to cover to better show the most important factors:

  1. I moved into a foreclosure with an FHA. This didn’t seem like a big deal at the time, but being able to find a foreclosure where the FHA will allow immediate move-in can be rare, so if you can find this type of deal you might want to look closely at it. Being able to use FHA means two things: 1) the bank will finance with a low down payment and 2) the bank won’t allow you to move into a foreclosure if it’s in really bad shape. Combine these two things, and you get a discounted house, which is move-in ready, at low cost to entry. EASY!
  2. My initial strategy was to remove the PMI on the original loan, and I was able to lower the interest rate a small bit, so I could pull out $20,000 while keeping my payment the same. Looking back, I should have pulled out as much as they would let me.
  3. Not all markets are equal. People who live in large cities probably look at my numbers and think it’s impossible to replicate, and others might look at these numbers and decide it may be worth moving to capitalize. Sacrifice was definitely a factor in my progress, but to be fair, sacrifice is most likely going to be a big factor anyway if you are starting without a lot of resources and intend to make progress. Something will have to give.


Related: 4 Steps Newbies Can Take to Get Ready to Invest (Even if You’re Still Saving Up!)

Experience Creates Momentum

Using the first home as financial leverage to buy the next is a great strategy, but the momentum it creates should not be undervalued.

That first house hack I did, where I created $60k out of thin air, was much more valuable in experience than in cash. This is because cash isn’t usually the choke point for beginners. Cash might seem like the problem, but the real problem is usually talent, resources, or strategy. Even if you have no shortage of cash, if you don’t know how to deploy it correctly, it’ll go to waste for sure. So the first deal or two, when you’re cash strapped and struggling, trying to grind out maximum returns from your deal is when you create the most momentum. It increases not only your return, but your self confidence. I wasn’t a smart guy who figured this stuff out when I started making money, just a knucklehead who thought he could do it and wound up making a lot. That’s when the momentum hit me. I thought, “Oh, this is not only profitable, it’s very POSSIBLE.”

Now that I knew it could be done, I was unstoppable. This has been the true springboard in my business, not so much because of the capital, but the confidence! Once that first deal or two is in the past, the future starts looking quite easy.

We’re republishing this article to help out our newer readers.

Do you have that first deal under your belt yet? What’s your plan for scaling your investing?

Weigh in below!





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There’s a new notable name among those who plan big investments in Opportunity Zones – Anthony Scaramucci. Scaramucci famously served as White House communications director last summer, before flaming out in just 10 days. After returning to his Wall Street roots, Scaramucci’s firm is planning to invest in Opportunity Zones.



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The legal battle between Airbnb and the Apartment Investment and Management Company over Aimco’s claims that Airbnb was encouraging residents to violate their leases by renting out their apartments on the short-term rental platform is now over. And everyone appears to be pleased.



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Southern Properties Capital, a subsidiary of real estate investment company Transcontinental Realty Investors that operates primarily in Texas and specializes in Class A multifamily, is forming a joint venture with a subsidiary of Macquarie Group, the global finance giant. According to the companies, the joint venture will focus on creating a “business platform that will allow dramatic expansion in the multifamily arena.”



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I know a lot of people would give anything for a chance to be on TV. I recently had the chance to become a star on one of those HGTV shows. Call me crazy, but I turned it down. Here’s why.

While I was truly honored to be asked to participate in a high profile TV show, I took some time to really think about it. I’m glad I did. I took a step back, listed out the pros to cons, and realized it just wasn’t for me. I know others have passed up these offers too, and I am sure that some who went through with it are possibly regretting it. It may be a dream come true for others, but here are the reasons I passed.

5 Reasons I Turned Down a Chance to Be a Star on HGTV

1. It’s not reality.

While all these real estate shows are heralded as “reality” TV, they really aren’t. These shows only detail the glamorous side of the business. My personal philosophy on BiggerPockets and in my interactions with others is to show the behind the scenes side—because the day-to-day, repetitive work is what gets you to the big “moments.” Knowing the reality is the only way to have realistic expectations and to invest intelligently.



Related: 3 Big Reasons I’m Not Sad to See Hit HGTV Show Fixer Upper Go

2. I don’t flip houses.

I am a buy and hold investor, not a house flipper. They wanted my partner and I to convey that we would be flipping houses to regular homeowners. We know how to do that. It just did not align with what we are trying to do, the way we actually invest for ourselves, and what we believe is best for others to do.

3. It’s a time drain.

If your goal in life is to be on TV, then I say go for it. Just know it is going to take up an enormous amount of your life. In reality, it can take hours just to get a few seconds or minutes of great footage used in the final cut. While it is appealing to me to be on a show, it takes time—time that I prefer to spend actually building a business, making real investments, and helping others do the same. Maybe you can remember the names of some of the real estate TV stars of the last 5 years. Most can barely remember a couple. I think you’ve also got to ask whether you want to spend a year or more of your life trying to get your 15 minutes of fame—or whether you’d rather put your time into something that will last and take care of you and your family for the rest of your life.

4. They fudge the math.

The math on these shows is a joke. Any real investor knows that. Often, they completely skip a lot of the holding costs, commissions, fees, labor, marketing expenses, and even repairs. What they show as being a profitable flip on TV can actually be a loss when you do the real math.

Related: 7 Ways TV Flipping Shows Are Completely Fake (As Any REAL Investor Knows!)

5. It’s dangerous.

For all the above reasons, these reality TV shows can be really dangerous to viewers. I’m not saying that is the intent of producers or the script writers—or that they even understand the implications. They are just trying to create entertainment and content that people will watch and that advertisers will pay to market through. It’s great that more people are being inspired and turned on to real estate and its benefits. Still, too many people are relying on these shows as education. Then they jump in without knowing what they are doing, often based on someone else who doesn’t know what they are doing. It is a recipe for disaster. Many have burned perfectly good careers and life savings trying to flip houses like they do on TV. Many have lost it all on their first try, and now have wrecked their credit, career, finances, and may be deeply in debt and legal trouble. Even though I personally prefer investing in apartments, I admit you can make money flipping houses, but you need to know what you are doing.

Summary

I weighed the pros and cons for me personally, and I turned down the offer to be a house flipping star on TV. That doesn’t mean TV or flipping houses doesn’t have value. I believe you just need to make an educated and objective decision about it, just as you do when investing in real estate in real life.

We’re republishing this article to help out our newer readers.

What do you think? Would you give anything to be on TV? Have you passed up an opportunity like this? Why?

Comment below!





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Everyone else on BiggerPockets is wrong.

That’s right, you read it here first.

Everyone. Even these guys:

“Personally, I prefer the 30-year mortgage, not only due to the flexibility, but also because I’m able to cash flow better with the lower monthly payment. Since I’m financing rental properties, my tenants are basically paying off the property, and I’m able to keep more of the cash flow due to depreciation.” Dave Van Horn, BiggerPockets Blog, January 5, 2017

“Go with the 30-year mortgage, and especially so in this current market of low interest rates.” Scott Trench, BiggerPockets Blog, July 28, 2018

With one exception I will discuss in a moment, new and intermediate investors are better served by shorter amortization loans. There are several reasons.

First and foremost, most investors should make an effort to build relationships with smaller, local banks. These banks generally only loan 15 or 20-year money and offer:

  • Quicker turnaround
  • Flexibility on credit score based on personal relationships
  • Knowledge of local markets
  • Networks of local attorneys, real estate agents, contractors, insurance agents, and other professionals
  • The option of cross pledging
  • Ability to keep money local

Private money and hard money sound great, but aren’t all they are cracked up to be. We aren’t talking about friends-and-family money, but companies like CoreVest, LendingOne, Visio, or a brokered loan. Based on my recent experience, some of the challenges for this these loans include:

  • Funding can take as long as 60-90 days
  • Rigid processes
  • High expenses and/or broker fees
  • No cross pledging
  • Extensive documentation requirements
  • Requirement for excellent financial records

Competitive Advantage

Every single item I list for small bank relationships has been a competitive advantage at some point. Quick loan turnarounds let me ink deals that others ponder on. Having a loan officer who knows how to get things done in town is invaluable. That might be getting a repair made or knowing the best agent for flood insurance.

If an investor chooses—or maybe more accurately has to choose private money—the disadvantages can be significant. A partner and I are trying to buy a 6-plex right now and are over 90 days trying to get the deal closed. The private money processes have been arduous. We have had an appraiser back out, a requirement for a property manager’s policies and procedures book, lease reviews by third party legal specialists, and other issues.  Not saying that these are necessarily bad—just that local banks don’t have these burdens and are easier for the new or intermediate investor.

Related: What’s Better Financially: Paying Off Your Home Mortgage or Investing That Money?

Reinvestment

Lack of reinvestment profit is the basis for most objections to using 15 or 20-year loans. An investor doing a basic analysis might rationally opt for 10-15% real estate returns with a 30-year loan over the alternative 5% mortgage interest savings or 8% stock market gains. But there is a fallacy in this logic—it implies that the cash flow disappears. That cash flow is not available for reinvestment. False news!

That investor has another option. They can use the equity in one property to buy another. This is called cross-collateralization and is possibly the most valuable advantage to using a small, local bank. Cross-collateralizing has two main benefits:

  • Additional investments can be made without any money out of pocket as long as you meet the bank’s loan-to-value requirements. These are typically 75-80%.
  • Reinvestment of both appreciation and loan principal reductions can be made in short turnaround times. New properties can be bought as often as a buyer likes.

This is exactly the method that I have used to grow to a $11M, 160+ property portfolio in small-town, slow-growth communities. I mentioned above that a partner and I are working with private money right now. That will be the first and only loan of its type that I will have—and it has been an absolute pain. Everything else is financed through a total of four small local banks except a single loan with a larger regional bank.

In December I purchased 24 units in my hometown for $1.6M. Eight units were from one seller, and 16 were from another. Because of my 10+ year relationship with a small local bank, I could close this somewhat complex deal 45 days after the offers were accepted with no money out of pocket.

Other Benefits

Shorter amortizations have additional benefits. The first is that it is an automatic savings plan. It is difficult to go out and buy a new Jeep with money that is not in an operating account somewhere. This will help significantly when I am ready to retire. My plan is to sell a portion of my portfolio, pay down debt, and create the cash flow I will need.

Related: 3 Reasons to Consider NOT Paying Off Your Mortgage

The second benefit of this equity-build method is to provide a buffer in the event of an economic downturn. If any of the local economies in which I am invested swoon, I can refinance properties to longer amortizations, lowering my monthly payments.

Lastly, financing with shorter amortization loans imposes financial discipline. Buying only properties that cash flow to your personal target with a higher monthly payment ensures that an investor is not “reaching” for marginally profitable properties.

 An Important Exception

This is advice to my 25-year-old self: If possible, a new investor’s first purchase(s) should be a house hack using agency (FHA, VA, etc.) money. Buy as many units as you can this way, up to a 4-plex at a time, up to the loan limits. Low down payment, 30-year amortization. Lather, rinse, repeat every two years.

Summing Up

Are shorter amortizations right for ALL situations? Of course not. But for the vast majority of the BiggerPockets non-expert level community, they are the right choice, and everyone who tells you differently is wrong. Even Dave and Scott. Work with smaller local banks and reap the long-term rewards.

We’re republishing this article to help out our newer readers.

Your turn to weigh in: What do you think about the 15-year vs. 30-year debate?

Comment below!





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While most of the market attention tends to be focused on Class A multifamily buildings, new research from CBRE suggests that there is another class of multifamily housing that represents a much larger opportunity for investors – workforce housing. And going into 2019, market conditions are positioning workforce housing for continued return on investment.



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Renters Warehouse, a property management company that specializes in managing single-family rentals, is set to expand its SFR business, as the company announced Tuesday that it is acquiring OwnAmerica, one of the country’s largest investment marketplaces for single-family rentals.



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There is more and more talk about a new real estate correction happening. It’s smart to be alert and aware of how the market is changing. But it’s even more important and wise to be ahead of the curve and to have efforts in place to weather the storm.

They say that the Manhattan property market has been in a correction for a year already. Some think that will keep spreading—though there are many others in the media saying we won’t face another crisis like 2008.

Whether or not you’ve experienced a correction, there are things you can do now to mitigate risk when it happens. Here’s what I do personally so I don’t have to worry as much when I hear news of a possible market correction.

5 Reasons I’m Not Worried About the New Real Estate Market Correction

1. I buy on cash flow, not appreciation.

My real estate investing model is to acquire income properties. I’m not counting on flipping or gambling on appreciation. That seems especially dangerous right now. The numbers have to work up front, and I have to be able to hold it. More recently, I moved up to multifamily apartments, which are even more resilient during tougher economic times.

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Related: With Markets Shifting, Should You Invest in Real Estate Now—Or Wait to Buy?

2. I focus on growth markets.

There may be some housing markets and cities that have peaked or even surpassed their recent peaks already. Still, there are also markets that are growing and have plenty of room for growth. Even within these cities, it is best to make sure not to be investing in the worst neighborhoods, which have poor performance and crime rates that bring down values. Initial cash flow projections and returns on investments in those lower income neighborhoods may look good on paper, but the longevity is not there. That is why they frequently change hands to different owners in short time periods of time

3. I’m selective.

ATTOM Data says that only just over 30% of houses flipped in the first half of 2018 were bought as distressed properties. That means most investors are picking full-priced properties (or higher) off of the MLS. They are gambling on appreciation to sell them for more or are putting little rehab work in to them to sell. You may want to be more selective. I probably now look at 175 to 200 properties before pulling one down to work on.

4. I stick to the numbers.

The numbers have to work. It’s still hard not to fall in love with properties, but you can’t afford to. You aren’t going to live there. It is far more profitable to just buy on the numbers alone. That’s why I often say my best deal was this 118-unit apartment complex I didn’t do.

If you let yourself fall in love with a property, you can be tempted to stretch numbers, make excuses, add in hope instead of facts, and generally sell yourself on a property you have no business buying. It helps to have a great partner who underwrites the deals on the math and always keeps you in check.

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Related: How I Found & Financed My Second House Hack in the Hot Market of Denver, CO

5. I focus on service and long-term value.

When it comes to management, I’m focusing more on service and making apartments “communities.” So, if or when rents drop, then that can give us the upper hand. If another community has lower rents or is marketing special deals, but our service is better with the rent rates a little higher, that is value we offer, and folks will see that.

People have been burned so badly and frequently in so many aspects in this day and age that they just want a business that will do what they say. It’s interesting that this basic level of honesty is so rare—and that’s good for us. It’s sad to see what will happen to so many other brands and jobs because they are trying to squeeze every dime out of people with sneaky tactics. People know they can trust us. They will stay. They will tell their friends, family, coworkers, and people they meet in the coffee shop or gym. That means lower turnover rates, and it adds far more net profit to our properties.

Conclusion

There may or may not be a housing correction at play. No matter when it comes or how deep it is, there are smart adjustments investors can make now to avoid risk. If you think bigger and longer term and aren’t drawn into stampedes in either direction, you should be OK.

What do YOU do to sleep well at night despite talk of market corrections?

Comment below!





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