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- Marques and Shyra from "Black, Married & Debt Free" aimed to achieve financial independence.
- In 2018, they utilized a home equity line of credit to purchase their initial rental property with cash.
- Now they own five rentals that bring in $28,000 a year in passive income.
Married couple Marques and Shyra, who blog at Black, Wedded & Without Debts And prefer not to reveal their surname on the internet, have been amassing a collection of rental assets since 2018.
After starting their debt-payoff journey, which began in 2015 and included crushing $33,000 of credit and student loan debt, as well as the mortgage on their home near Sacramento, California, the couple decided their next big-ticket goal would be investing in rental properties. They spoke to Business Insider about their investment strategy in 2022.
They've amassed five rentals, which rake in $28,000 a year in passive income after expenses. However, to pay for their first rental property, they decided on an out-of-box approach: tapping into the equity in their Sacramento condo to purchase the house with cash .
They utilized a home equity line of credit to buy the rental property.
After Marque and Shyra paid off their debts, they viewed real estate as a route to achieving financial independence.
"Even though we were debt-free, which impacted our quality of life, the next day, we were stuck in traffic going to work," said Marques. "It didn't lower our stress level, and we didn't achieve financial freedom. We wanted more freedom with our time and choices."
Although the pair might have set aside funds for a down payment on their rental property, it would have required several months, or possibly even a few years.
After doing their homework and mulling over different options, Marques and Shyra decided to tap into their primary home's equity to buy their first rental property entirely in cash using a home equity line of credit . They borrowed $120,000 at a rate of 5.5%; it was 2018.
"We felt that a HELOC would give us leverage and negotiation power that traditional financing would not provide," said Shyra. "We would get a better deal and higher cash flow."
A Home Equity Line of Credit (HELOC) functions as an ongoing line of credit, secured by your residence, which acts as collateral. This type of loan can be utilized for numerous purposes including financing home renovation endeavors, combining debts, covering educational expenses, or settling medical costs.
Similar to a credit card , you can withdraw various amounts and are responsible for repaying the outstanding balance. Home Equity Lines of Credit (HELOCs) usually include a draw period, which is a specified timeframe during which you can access funds from your credit line.
They managed to expedite the closure of the process rapidly.
Once the couple secured the Home Equity Line of Credit (HELOC), which required roughly 30 days, they completed their second significant transaction—the acquisition of a rental property—within approximately two weeks thereafter.
"Because we used a HELOC, we had access to a form of cash," said Shyra. "And as more sellers are looking for cash buyers, the closing process went by quickly."
In addition to a speedy closing process, purchasing with cash allowed them to secure a more favorable purchase price. The property—a three-bedroom, one-and-a-half-bathroom house located in a suburban area of Greensboro, North Carolina—was originally priced at $110,000. However, after putting on their negotiating caps, the couple successfully lowered the price to $104,000.
"Compared to a conventional loan, time is working in your favor," said Shyra, explaining that the time it takes to underwrite a traditional mortgage could have slowed down the deal. With the cash from the HELOC, the home purchase was just between the seller and the couple.
They prioritized making a profit
To avoid getting swept up in the allure of a particular rental property, Marques and Shyra focused on making sure their rental income covered both their monthly HELOC payment — about $700 — along with any additional expenses of homeownership. "You have to pay it back — with interest," said Marques of the HELOC. "It's not a gift."
When selecting a spot for their rental, they sought a fully prepared house that would be practically inhabitable right away for renters. Since they reside out-of-state, they preferred not to manage big renovations remotely. Additionally, they wanted properties located beyond city centers but within zones experiencing economic expansion and flourishing sectors.
Lastly, the pair made sure to land on a HELOC with a fixed interest rate versus an adjustable rate. That way, the HELOC payments wouldn't fluctuate. "If you're buying a rental property, you can't go up and down in your rent," said Marques.
They have a dependable team for interstate matters.
The duo, after expanding their holdings to include three homes in North Carolina and two in Alabama, prioritized assembling a reliable and seasoned group to handle their properties. Their team included a property manager, a lender, a real estate agent, as well as a general contractor responsible for overseeing all maintenance and repair work.
We feel assured with a team in position," stated Marques. "It relieves our concerns regarding our properties and ensures that both our tenants’ requirements and our business objectives are effectively addressed.
Another perk of having a solid team to take care of their rental properties was that the couple rarely needed to travel for in-person visits. However, they did make it a point to see every property they bought before they handed over the keys to the property manager.
They used 'extra' money from the HELOC to buy their second rental property
Since the couple took out a $120,000 HELOC on a home with a $104,000 price tag, they intended to keep the remaining $16,000 untouched for maintenance and repairs.
However, they ultimately did not have to use the remaining portion of their home equity line of credit (HELOC), so they applied those funds as part of the down payment for a second rental property, which they purchased using a different method. conventional mortgage .
The advantage of a HELOC lies in your ability to execute various transactions using the same line of credit, as Marques pointed out. To illustrate, suppose you secure a $100,000 HELOC; you could utilize $10,000 from it today, another $10,000 for a separate purpose at a later date, and continue this pattern accordingly.
Overall, Marques and Shyra expressed their contentment with deciding to buy their initial rental property using a Home Equity Line of Credit (HELOC). They appreciated the seamless experience throughout the process and found that paying in full provided them with greater influence and bargaining strength when making the deal.
Embarking on a journey across the nation via air for investment purposes was quite an adventure," stated Shyra. "We approach this method with strategies that minimize our risks but still allow us to gain substantial rewards. We have also managed to benefit from the increase in value.
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This article was originally published in October 2022.
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