Advice on long-term plan

[Tyler Weinrich]

Been doing research for a while on the site and other places. At the point where we, wife and I, are ready to purchase a house. Or, we thought we were. We've been actively looking, found a few deals that meet our criteria, but we are hesitating to pull the trigger.

The reason we are hesitating is we keep rethinking our long-term strategy. We'll get it figured out, then think about it again and lose faith in our plans only to have to re-hash it or come up with a new one. We've gotten to the point of submitting offers and not responding to counters because of this.

I'm writing here to get some advice. Below is my scenario and questions or direction we could use help with.

Our situation:

• Primary residence mortgage under both our names at ~95% loan to value (PMI is being paid)
• $100k capital to invest at this point
• Could save/invest only about $5-7k per year from our current income
• Goal is to create passive income down the road to free us up from the corporate chains, maximize our current capital, and do so as quickly as we can. Don't mistake that for being hasty, rather anxious and efficient.

Our Initial plan:

• Purchase 3-5 properties over next 2 years (end of 2016) using $80k - $85k. SFR's. Actual number depends on cost of homes ($50 - $80k ideal).
• After these are acquired, use cash flow to pay down one mortgage, allowing us to start a new one. Save up down payment. Purchase new property. Pay another down and so on.
  • This is the fork in the road for us and I'm sure others. We can either funnel cash into paying down mortgage(s) or save up cash for more properties (financing on these is a bit fuzzy). Question on this below.
• Continue acquiring new properties as often as we can.

The questions:

• Why wouldn't we just try to pay off most/all of our current mortgage first with cash flow? That is after using up initial capital. The idea keeps coming up that we are going to end up paying a lot of money to bank in interest on that mortgage (~$100k), so it stands to reason that money invested in that would prevent us from paying this interest, saving us ~$100k let's say. So we buy 3-4 houses with our capital, funnel all cash flow into primary mortgage to pay that off within 7-8 years freeing up another conventional financing purchase and allowing us to use the equity in primary home to fund more purchases. This doesn't necessarily feel right though. I haven't been able to prove it in numbers that trying to acquire more cash flowing properties would be better. Maybe I'm just over thinking it but this seems like a slower path. Slower because we could ignore the larger, primary mortgage and pay down smaller investment property mortgages.
• How difficult is it to get a blanket loan from a bank? It gets thrown around on podcasts and forums a lot as a go-to strategy once you hit 4 or 10 mortgages. Has anyone gotten to this point and been unable to acquire such a loan and gotten stuck in the mud? Does anyone have a story of not even using this strategy and just paying down mortgages as quickly as you can they could share? Or, using a different strategy all together?
• Does anyone have any insight on paying down mortgages before finding a new home versus trying to focus on rapid growth? Specifically, what has worked better in your case and why? Which would you do today if you could start over? Really not looking for "the answer", just want to hear some opinions on it. If anyone has numbers on this, I'd love to see them.

[William Brace]

As you stated you read/hear a lot about the 4/10 mortgages. If a lender tells you the Fannie limit is 4, they are not very well informed, go find a new lender. I just closed on my 6th conventional mortgage two weeks ago and have four more to go before I have to look for a different solution.

Now specific banks may have a lower limit but that is called an overlay meaning their limits are lower for that specific bank but that is self imposed by that specific bank.

As to the mortgage pay down, I wouldn't recommend using all that cash or cash flow to pay down the properties. I would take that available cash and acquire more properties.

Think of it this way, if you take all that cash and pay off property # 1, you still have insurance and taxes. So you eliminated the interest potion of that payment. So how much per month did that save you? Keep in mind you no longer have that interest tax deduction. Now, how much cash flow could you make by taking that available cash and acquiring more property? Most seasoned investors will agree with the above strategy.