1st single family rental is paid off. How to buy another?

[Jeff Leeker]

1st and only rental is paid off. It's worth about $110,000.. rent is $850/mth. After all expenses I make $500/mth for the past 8 years. It's in my name, no LLC. I want to keep this single family rental and buy another with it as leaverage. 1. How do I do this with Little to no money out of my pocket? 2. Should I keep them in my name or create an LLC? 3. I'm looking at buying a $200,000. home with a rent rate between $1200-$1400/mth. Would this be a good next investment? Thanks

[Josiah Kay]

1) One option is to take out a HELOC on this rental. It may be a bit more difficult to find a lender that will issue a HELOC on a non-owner occupied dwelling, but I'm sure you can find one. With the HELOC, you can then draw the funds you need to purchase when you are ready to buy. Another option would be to do a cash-out refinance on the property. The main downside of this is that you will start accruing interest from day one of the loan, versus a HELOC that will only accrue interest when you make your draw(s).

2) I would suggest speaking with your accountant and/or attorney. 

3) I wouldn't be very excited about a $200K house that is going to yield $1,200 - $1,400 per month. In my area, a $100K - $120K house can get those same rents. I haven't ran the numbers, but I can't imagine your ROI or cashflow would be strong at $1,200 rent for a $200K property. A rule of thumb that I hear a lot is the 1% rule where you want your monthly rental amount to be at least 1% of the purchase price. For example, with a $200K house you would want at least $2,000 in rent per month.