Plotting My Next Move

[John T]

Ok, let me give you the run down... I bought my first property in Dec 2010 using a conventional mortage and putting 20% down. The property is a duplex, where I live in one half, and the other half is rented. The rent covers about 3/5ths of my PITI. The rent is $1250 and my PITI is $2k.

Now I'm ready to buy another piece of property and I'm trying to figure out the best way to go about it.... Which is why I'm here.

The property I want to buy is approx $400k and is also a duplex where each side would rent for $2500/mo... The PITI for this property will be $3k/mo. I will need to live in this property for a year or 2 so I can get an owner occupied rate. So for those couple years, property #1 will be fully rented, which will net $1k/mo positive cash flow.

So I guess my question is.... Do I save my pennies and put the 20% down on the new property or is there a better option? Even if I can come up with the 20%, I'm affraid my DTI will be too high between my current property and this new one to get the mortgage for property #2.

As far as my personal finances go, I could afford paying both mortgages as long as I had 1 tenant, regardless of which unit they were in. The only debt I have is my current mortgage... I have no credit card debt or car payments.

I was told by my mortgage broker, I should pull the equity out of my current property while I live there and get the owner occupied rate on the home equity loan. Then take that money and use it for the downpayment on the other property. Move to the other property and get another owner occupied mortgage for property #2. My worry with this is becoming over leveraged. Thoughts?

I know I'm not using the 50% rule in any of my calculations, but this is just for ease of explanation. I work in finance and trust me I've got more spreadsheets and scenarios put together than is healthy for any single investor.

My goal is to create an empire (I like collecting rent checks), so I'm looking to buy and hold these properties while I continue to build my portfolio...

All suggestions are welcome :)