Deal #2 and beyond...

[DJ Cummins]

Hello Everyone,
I would appreciate any/all feedback. I have seen a lot of different posts about how to finance your first deal. My thought is, how do you finance you second deal and after? What types of cash reserves do you need to have built up before you decide to purchase your second property? How do you come up with the cash? Good ole fashion savings? We are looking around for our first property, thinking a 4 unit multi-family, and the down payment is going to eat up approximately 60% of the money we have available to use. Looking at around 50k total to start with (but not planning to purchase until after the first of the year for tax purposes). I have seen multiple 4 unit buildings, and all are at or around the 150k mark in St. Louis area. These are good but not great buildings. Outside looks nice, but on most the inside is outdated by about 2 decades.

So, how did you move forward after deal #1? How long did your second investment take, and how did you come up with the down payment?
Thanks!
DJ Cummins

[Michael Evans]

Leverage, leverage, and more leverage.  Just be careful too not over-leverage yourself (as far as the number of properties).  Each property should be a separate deal not associated with any other deal (I would put each property in a separate land trust).

Leverage is how you grow your money. If you have $50K, instead of putting it all into a single property, split it into 4-5 pots of money to fund 4-5 leveraged deal. Develop an investment model that calculates your required cash to close, rehab and buy and hold, and then compare that to your annual cash flow to calculate your cash-on-cash ROI. Compare the different ROIs for each deal to determine which are best. For each deal I have, I develop at least 3 different funding scenarios:

• 100% financing (1st and 2nd combos) for purchase, closing costs and rehab costs (you cover costs not covered by the 1st and 2nd mortgages)
• 65%-70% LTV to ARV to cover the purchase, closing costs and rehab costs (you cover costs not covered by the 1st mortgage)
• 65% LTV to purchase price (you cover the down payment, closing costs and rehab costs)

Of these scenarios, the last will require the most cash and provide the lowest ROI. Also, don't develop your models using conventional mortgages. Develop your models with private and hard money in mind. Since each deal is independent, private money and hard money lenders are focused on the individual property's ability to pay back the loan.

God Bless You!