How/When do I purchase my second property?

Question

Hello BP community!!

I value your advice and know there’s no better advice than from the doers, so here I am seeking advice from doers. I just worked a 15 hour day and the whole time the thoughts that ruled my mind where about how to acquire the next property. I’ll explain my situation and maybe you’d all be kind enough to give me your valuable advice.

I recently purchased a $150k student rental duplex via FHA . The one side is rented out at $900/month and I’m renting a room on my side for $450/month. Once I move out I’ll get students in here and receive $2800/student/semester with a max of 3 students on each side.  That’s $2800 a month. I make between $60k and $75k a year. That’s above average for my area. It’s also dependent on the overtime I work. My hourly salary is $22.54.

I’m highly leveraged on my only property and have $4.5k in student debt that’s it. I have $20k in cash and am quickly saving. Im looking to purchase a single family fixer upper to rent and then sell. Around $120k would be my max price point. I’m 23 and am not sure where I want to live in this country so I don’t want to acquire to many properties in one area.

That was the backstory, I feel you need to know that to answer my question.

My questions: how do I get money for my next property? Should I purchase another property ASAP or wait a bit and save/build equity more? How do I find a property that is a good deal? Should I send postcards to properties that seem to match my criteria and offer to purchase off market?

Thank you so much! I look forward to feedback.

Andrew Kougl · Answer

@Jake Arnold

You've really got a TON going for you and sounds like you can stack together multiple strategies which will ultimately really accelerate your growth.

1) You are willing to move

2) You are willing to rehab yourself

3) You are willing to house hack with roommates

4) You live in/near markets that cash flow

You are perfectly setup for owner occupied house hacks of multifamily properties with a possibility to transition to BRRRR or live in flips once you have enough capital.

I firmly believe it's important to play to your strengths and what your market(s) allow. Using the above strategies, you should be looking to purchase a property every 1 to 1.5 years. I know a HELOC was mentioned or taking from retirement accounts but I wouldn't because a HELOC requires equity (i.e. larger down payment) and/or appreciation and it sounds like you won't have much of either to maximize growth and your cash on cash return in your cash flow market. And you're way too young to forgo interest investment compounding so I'd keep contributing enough to retirement accounts to get the match and let it ride. Always good to invest in multiple economic sectors.

As long as you are buying duplexes and larger, you won't have issues with vacancy and you'll be able to pay the mortgages. You will have to watch out for your 10 mortgage limit however so either find a portfolio lender or 1031 exchange into something better.

Keep going for as long as you can. This strategy typically only works for young singles and once you get married and have kids the "move every other year thing" isn't feasible. You've got 5 to 7 years of working super hard and growing your portfolio like crazy before you'll need to switch strategies. Best of luck.

Logan Tolson · Answer

@Jake Arnold I use a realtor and found my deals on the MLS so far. I look for properties myself though through a realtor. One important thing is I dont expect my realtor to find me a good deal. I'm the one finding them. I need a realtor that answers her phone right away when I call and handles anything I need handled because I work full time. So she works out for me.

Rebecca Palermo · Answer

"How do I get money for my next property?" You said you have around 20k saved up already, I feel like this would easily get you another property. You can always find a partner or take out HELOC on your first property to fill in some gaps in funding. This doesn't come without risk, but it depends on what level of risk you are comfortable with.

"Should I purchase another property ASAP or wait a bit and save/build equity more?" I think the biggest trap would be waiting too long, it seems more likely that you would succeed if you keep building on the momentum of your first purchase and move on as soon as you feel able. Again, it comes down to risk tolerance.

"How do I find a property that is a good deal? Should I send postcards to properties that seem to match my criteria and offer to purchase off market?"  If you have time to dig through tax lists and send out mailers that seems to be an extremely effective strategy for finding low-cost deals. I would decide on how much money you want to allocate towards mailing, don't spend everything to find a property and be left with 5k when it comes times to actually buy it! It looks like you have fairly good luck finding deals off the MLS, so maybe connect with your real estate agent and see if they have anything in their funnel worth checking out before starting the mailing process. It can't hurt to ask!

Adam Hughes · Answer

@Jake Arnold look for another duplex, triplex, or quad. Buy it owner occupied and rent out the rest. Save up the cash for a year and do it again. DONT WAIT! I waited 12 years to buy my next rental and I’m 34 now. My biggest regret was not goi g all in back then. By the time you’re 30 that 22.54/hour will be 100x. Just go all in.

Jason Wray · Answer

@Jake Arnold @Logan Tolson  Jake you do not have to wait if you have $20K cash saved you can buy something right now.  Your income looks good and your student debt is not a deciding factor.  The debt gets factored at 1% of the total so the bank uses $45.00 if you have a $4500.00 total.  Since you do not occupy the home you could buy another Primary with 3-5% down and again use the BRRR method.  Logan looks like your in the same situation have good income and would be ready to buy your next investment.

Logan Tolson · Answer

I bought my first property 6 months ago with an FHA mortgage with 3.5% down, used a 401k loan to do some renovations to increase rental values. I did a majority of the work myself to cut down costs and do the property management. I am now closing on my second property this Friday with an investment loan 25% down. I cash flow on my first duplex an amount I am comfortable with and I will cash flow a comfortable amount with this other duplex. So the question to ask yourself is what reserves are you comfortable with? What level of risk are you comfortable with? We make a similar wage and with 0% occupancy I can swing both mortgages so I personally feel very comfortable. I am 24 so I am okay with failing. We have time on our side.

Money for your next property could come from a 401k if you have one to tap into. If you have a roth ira it is to my understanding you can withdraw what you have contributed to it, just not the gains. You can always ask family for low interest loans.

As for are you ready for another property? That's up to you. I truly believe success is through massive action. I go to work and I come home and work. Work can be painting my side of the duplex or through self education. A lot of my self education is through bigger pockets pod casts, seeing different perspectives how others are doing things. Listening to audio books during work. Educate yourself constantly!

As you probably already know the bigger pockets calculator you can use to analyze your deals. Look for deal killers like higher than expected taxes, or owner paid water sewer bills need factored in. Look at what the market is paying for in rent what your buying. I look for some simple value add. No rentals in my area offer washer dryer hook ups or air conditioning. Those were two things I added right away in my first duplex and I boosted rental income by 25%. Closing on this next property I will be able to do the same thing, add washer dryer hook ups and add air conditioning. Yes I am adding to my expenses, so factor that in. Also I make sure that if I spend $5000 adding these said things then I need to be getting at least a 10% return on that through rental income. Lastly, to my surprise, when I was showing my property, people were surprised on how beautiful my property was. I didn't fix any of the blemishes on the walls. I painted the walls a neutral color and painted the trim and doors white covering the old dated wood trim. Something as simple as new paint makes me stand out in my market. Take that all in account when you are looking for deals and what's your market isn't offering and what you can offer?

I have not done any direct mail marketing so I cant speak on that but If you do go that route I would definitely be sure to have the cash readily available to make moves.

I am definitely interested in what others have to say because we make a similar income and are similar in age, both working on our second property.

Jake Arnold · Answer

@Andrew Kougl thank you!

Zachary Ray · Answer

You would wait a year before renting your side out. However just build some reserves beyond the next down payment so you have a cushion to fall back on.

Jake Arnold · Answer

@Logan Tolson just using the MLS and a realtor to purchase?

Logan Tolson · Answer

@Jake Arnold I live in Ohio. I'm investing in a C area because price to rent is very good. My primary residence duplex I bought for 80k and rents for 600 a side. The duplex im signing for tomorrow i bought for 106k and will rent for $700 a side. So the numbers really work out where I'm at. They are also 50 ft away from each other.

How/When do I purchase my second property?

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