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Hello, Vivian. To make any kind of judgment on such a risk, the types of property need to be known (residential, commercial, mobile, whether you live in the potential HELOC or mortgaged property, or receive rental income from it), and how the area of both properties behaved when we went into the last recession a decade ago. How fast and far did property values decline back then? It’s a reasonable assumption that the one we’re heading into this time will likely be a lot worse. Could you potentially get whipsawed between a fixed loan on the first property, versus a possibly unstable revenue stream from the potential acquisition?And to defend against that possibility, could it make more sense to negotiate a lease on the property to be acquired with an option (but not an obligation) to purchase at a later date? That might be especially valuable if the option price was tied to some local value index so that if property values dropped like a rock, you might benefit from that instead of being stuck with a pre-drop option purchase price.
If either or both of these properties are commercial, institutional lenders often turn vicious in an economic downturn, and may try every dirty trick in the book (including fraud) to pull off a foreclosure in order to bolster their banking reserves. This was all too common a decade ago.
But there’s no point in going into detail without knowing the kinds of both properties, their actual or intended income streams (if any), and your intentions over the long term. With those kinds of basics, the wise old owls here on CFD might have some useful thoughts to hoot about for you.
Best wishes,
–Dee
.Thank you for this response.
The source of the equity is a single family residence purchased last fall. Being contemplated is the purchase of “manufactured” housing in Northern CA (closer to family and a refuge from Las Vegas summers, plus the affordability factor). Due to limited income (retired) the cash purchase route has been taken, using funds from the sale of another property. If enough equity can be accessed to support this goal, the current single family residence would become a rental as I don’t think it can be sold at this time at a price that would cover closing costs. The current listings are trending about the same or a little lower than my purchase price.
I “sense” that I should try to recapture some of the equity tied up in the property while it’s feasible, since I’m not inclined to remain in Las Vegas.
Thanks for helping me get clarity on how/if I should go forward with this scenario!Thank you for this response. (I hope this isn’t a duplicate – I’m struggling a little with the posting process!)
The source of the equity is a single family residence purchased last fall. Being contemplated is the purchase of “manufactured” housing in Northern CA (closer to family and a refuge from Las Vegas summers, plus the affordability factor). Due to limited income (retired) the cash purchase route has been taken, using funds from the sale of another property. If enough equity can be accessed to support this goal, the current single family residence would become a rental as I don’t think it can be sold at this time at a price that would cover closing costs. The current listings are trending about the same or a little lower than my purchase price.
I “sense” that I should try to recapture some of the equity tied up in the property while it’s feasible, since I’m not inclined to remain in Las Vegas.
Thanks for helping me get clarity on how/if I should go forward with this scenario!.
Vivian, your explanation helps a lot. Since out-of-state rental management is often a nightmare, there are a couple of solutions, the better one of which is much lesser known.The realty industry promotes their “property management” solution, where one of their people gets management compensation for screening tenants, looking after repairs, evictions, etc — but they get paid even when the property goes vacant. That’s not such a good incentive, and it tends to involve a lesser quality of tenants.
The better, but lesser known, plan is to find a person in that area who is experienced at master leasing. S/he leases the property from you, and then sub-leases it to tenants. The best arrangement is a performance compensation system, where s/he only gets paid while the property is occupied. That’s a far better incentive, plus there are a lot of other benefits. (The licensed realty industry doesn’t know how or why to do master leasing.)
CashFlowDepot is a huge fan of master leasing, and it’s probably a good place to let people know of your Las Vegas property and the opportunity to master lease it.
I’ve been through the two-states-away rental property management misery, long before I ever heard of master leasing. FYI.
–Dee
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Vivian, here’s another idea for turning that Las Vegas property into an income generator. Here’s an excerpt from a newsletter I just received that quotes James Altucher (the side hustle guru) on turning houses into Airbnb money-makers:========
Become an Airbnb Management CompanyHere’s how I would do it: get on padmapper.com and look for places that have been listed for a long time or places that are close to touristy parts of town.
Contact them and offer to set them up on Airbnb.
You’ll come over and take pictures of their house, you’ll create their profile on the website, you’ll be the contact person for the guests, you’ll handle delivery of the keys (or install a Lockitron), you’ll even wash the sheets (or just manage the cleaning crew).
You could charge a one-time setup fee and a monthly management subscription. Another method of finding customers would be to find seasonal homes, like beach houses or ski cabins, and leave a letter in the mailbox saying “Want to make some cash while you’re not staying here? I’ll set you up on Airbnb and manage everything. Here’s my number.”
Airbnb is just one choice but there are also sites like onefinestay.com, couchsurfing.com and other local sites that cater to vacation rentals that could benefit from this.
===============Now I don’t claim to know beans about what, if any, regulations Las Vegas might have about Airbnb-style competition to their established and humorless hotel industry. But if you find out that Airbnb-style operations can and are thriving in Las Vegas, then a combination of master leasing in the hands of someone local to Las Vegas who could manage Airbnb type clientele on a year around basis …. might be a great long term money generator for you. That might give you an interesting alternative to traditional rental tenants — one that caters to the year around uniqueness of Las Vegas.
—Dee
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Vivian, I should have also mentioned RentOMeter.com as a quick way to estimate what your Las Vegas house could rent for on a long term basis:Just plug in the relevant location and the basics about your house, and it will give you a good feel for what kind of gross (before expenses) rental income is likely. Then you’l have some numbers to compare with the Airbnb style operation possibilities.
—Dee
I am SO grateful for this forum and your generous advice. Las Vegas has just passed a restrictive short term rental law pushing back on investors. My understanding is that anything less than 31 days must now be owner-occupied. My HOA ordinance requires a 6-month minimum stay. I actually know a real estate agent currently living in an apartment who has expressed an interest in renting for a year. Your suggestion of master leasing definitely interests me. It could be my gateway to learning first hand about master leasing.
Bear with me, just confirming that in your expertise, there are no flashing red signs in connection with a HELOC to further my goals? A financial planner I spoke with told me he would NEVER recommend a HELOC but I’m seeking additional counsel from knowledgeable people before ruling it out (assuming I can qualify).
Many thanks.
Vivian, I’m not an expert on HELOC loans, but I can run searches that work. Here’s one of the most interesting and insightful articles I found on the pros and cons of HELOCs. It’s clear there are some substantial risks, and a wide variety of different gotchas among lenders: If one defaults and the lender forecloses, it looks like a quick way to lose a huge chunk of equity — just like the problem with reverse mortgages. The adjustable rates also look spooky. A friend of mine is about to lose her house because the adjustable rate mortage she was suckered into getting as a “bargain” re-fi just adjusted skyward out of her reach, and is making her a broken renter.https://www.debt.org/real-estate/mortgages/home-equity-line-of-credit/
—Dee
Vivian,,
You do not want to or need to pull out the equity in the home. Then it will have debt.
There are so many other ways to buy real estate which do not require using cash.
You can buy with seller financing
you can buy subject to an existing mortgage
you can do master leasing – for cash flow – does not require buying the house
you can do wholesaling – does not require any cash or buying the houseThe last two strategies are the better way to start because they had LESS RISKS.
Note, that you usually cannot find these kind of opportunities with a house that is listed with a real estate agent – and even if you did, it would already be priced way too high AND the agent would expect to get a commission so it would require much more cash than buying directly from the owner.
It is much better to find motivated sellers of houses. You can run ads on craigstlist for free. You can put magnetic signs on the side of your care that say “We Buy Houses” or “Sell Your House In 9 Days”
tell everyone you know that you are looking for houses to buy that need a lot of work (for wholesaling) OR owners with vacant houses that are in good condition (fore master leasing)
Do not pull the equity out of your house. it is not necessary.
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Vivian, I have to correct here what I wrote above, since the delete function here is behaving strangely. I’m advised that legal versions of the Scruggs books are still available in the CashFlowDepot’s Amazon store.BTW, this older post on CFD has some relevant biographical notes on the late Lonnie Scruggs, who was an inspiring and guiding light to many here on CFD:
–Dee
Thank you both! My end game is to purchase a primary home for myself closer to family (and to be real I just don’t like the desert environment). The current property is mortgage free so I was musing on accessing equity to purchase and relocate. I don’t think I can qualify for a mortgage on my current retirement income so need to go cash purchase or plump down a significant down (in my estimation). Homes comparable to mine or selling at about what I paid and a little lower, so I don’t think I should sell now if I don’t have to (although I just may have to).
Regarding the modular homes (as an option for myself) I’m trying to research them as I know zilch about them (do they appreciate, can you improve them, etc.) The listing prices got my attention but I’m basically ignorant about the industry.
Regarding mobile home sales – I’ve been listening to “Donnie deals” – and related seminars on the industry.
I’ve just run across the residential assisted living talk by Robert King. Interesting. Basically, I’m perusing the wealth of info on this site looking for an “aha” find for me to venture into real estate investing, while simultaneously trying to create a means to relocate!
I’ve come to the realization, through this priceless feedback, that I may need to focus on one goal at a time. So excited for this exposure!
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Vivian, I think you have several of your puzzle pieces at hand, but you’re right about sticking to bite-sized chunks, especially while you’re learning.My thought is to first find the person with the master leasing experience who is close enough to service the Las Vegas market. But you don’t want to pull that trigger until you have found affordable quarters closer to your family. That might even work most efficiently if you would consider renting with an option to buy. There are all kinds of things that could change. For example, there are lots of people fleeing California because of affordability, because of toxic government, and the hope of bailing out before property values decline even more — as the nation sinks into a recession much bigger than the 2008 era. And renting on a temporary basis could help conserve your cash, and could give you not only the ability to change locations later, but also could give you time to gain more confidence in the rental income stream from your Las Vegas property — while you learn more about doing profitable real estate deals here on CFD. Preserving the choice to stay put, to upgrade your living quarters, or to move as needed is a good set of possibilities to preserve with renting with that option, but not the obligation, to purchase at a later time.
The real estate investing community usually refers to such arrangements as lease-options, and much of their literature uses that term. Some states like Texas have clamped down on lease options to make them too painful to do. I don’t know what California’s regulations might be on the matter — you’d want to find that out.
The Lonnie deals materials, made famous by Lonnie Scruggs, should provide much insight into the most economical ways to find inexpensive mobile home deals. With you being out of state, it might even be possible to coach some of your family on how to look for such deals for you to check out. Once that process has completed, and you’ve found a suitable place to live, THEN you can feel free to pull the trigger by OKing the master leasing person you previously lined up to proceed with finding tenants for your Las Vegas place.
The one-step-at-a-time process is eminently doable.
–Dee
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