Real estate investment: the successful cross-collateralisation of Ex-Marine

After eight years in the Marine Corps, Matt DeBoth knew his life had to take a new direction.

“I kind of wanted to be my own boss,” he said. Business intern. “I was fed up with being told what to do and just wanted to make money passively.”

He added: “I realized that real estate was the way to get there.”

During his last overseas deployment, DeBoth voraciously consumed any real estate information he could get his hands on. that of Robert Kiyosaki “Rich Dad, Poor Dad” served as an influential base during this process.

“I pretty much picked up all the books I could,” he said. “I’ve never had a coaching class or anything like that.”

When DeBoth returned home to North Carolina, he hit the ground running. After spending hours scouring the internet for single family home purchases, he stumbled across a 20 unit property that seemed like a prime candidate for a home hacking.

For the uninitiated, house hacking is a real estate investment strategy that uses the extra rooms or units of your primary residence. A home hacker can cover the costs associated with owning the property and even generate positive income by renting out these spaces.

“I knew for a fact that it was out of my price range,” he said. “I knew there was no way I could find 20% less.”

Still, DeBoth was not deterred. He ran the numbers, emailed the real estate agent, and finally got in touch with the owner of the property.

After DeBoth developed a relationship and negotiated with the owner, he purchased the property for $ 500,000 with a down payment of $ 50,000, or about $ 200,000 less than the listed price. Although his interest-only payments peaked at around 12.5% ​​for the first six months, DeBoth said the deal was cash flow from the start because of the negotiated purchase price.

“He took a chance on me,” he said. “From day one, I guess you would say I was financially free just by signing the closing papers.”

This first 20 unit house hack laid the foundation for DeBoth’s career as a successful real estate investor. Today, it sports a portfolio of 174 units consisting of single-family rentals and apartments.

Here is how he did it.

A creative strategy

Shortly after DeBoth landed his 20-unit house hack, he purchased two single-family residences. He bought one for $ 8,000 in cash and immediately disposed of it for $ 16,000. He bought the second home with a $ 25,000 advance on a credit card. The profits and equity he made from these properties would be used to snowball his assets.

Once DeBoth was able to refinance his 20-unit building, he began to cross collateral its properties to add to its portfolio. Essentially, he uses one property to pay for another under this methodology.

Since DeBoth is well aware of the risks associated with this strategy – losing both properties instead of one – he tries to insure each other for short intervals, usually around six to 12 months. In this way, it does not create a “house of cards” type scenario that prevailed during the financial crisis, he said.

“I’m going to tie property B to property A, fix that, refinance it – and now, boom, I have two pouring in like crazy,” he said.

Plus, when DeBoth refinances its properties, it doesn’t take away any additional equity it may have accumulated through the renovations. In doing so, the debt service coverage ratio remains high, he said. He calls it “the golden ratio” that banks watch closely.

“I usually try to get my DSCR to 1.4,” he said. “I look at these added values ​​and I relet them, I put a new direction in there, I repair what needs to be repaired. And then once that’s all done, I refinance it, I leave all that money – all that equity on the books – just refinance it for whatever I owe on it and that’s when it starts pouring in . “

Ultimately, DeBoth hopes to bring in between $ 125 and $ 150 in cash flow per unit.

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