I have 40k and don't know where to start!

[Trevor Smith]

I'm a real estate agent in Pennsylvania right outside of Philadelphia. I work full-time and do real estate on the side. I currently have one rental property which was my primary residence initially (I now live with my girlfriend). I'm looking to build my portfolio with more rental properties and hopefully quit my job and focus on real estate primarily. My current rental is underwater and I'm not breaking even on it. It's not a big deal because I do have a pretty good job and can afford to pay the difference. It sucks, but I don't really have a choice. While leasing my property I was able to pay off some debts (car, credit cards, etc...) and save 20k. I also have another 20-25k in credit cards free. Where do I start? Can I get financing to purchase a rental property? I live in an area with a lot of rental potential. Please help!

[Jerry Kisasonak]

Trevor Smith In my opinion you should do something with that underwater property first. Considering the negative cashflow as no big deal is a cause for concern. A bank is going to look at the one rental you have and see that it isn't even cashflowing for you. They are immediately going to question your business model/investment plan, and rightly so. Even if you're buying a single family rental, banks are going to look at things like the DSCR (debt service coverage ratio). Google this if you're not aware of what it is and how to calculate the numbers. In short, they want to see rents exceed the cost of owning the property.

Suggestions on things to do with your rental:
1. Refi if it will then cashflow for you.
2. See if the current loan can be recast. Pay down some of the principle with your current funds, then recast it (unless your lender suggests a better method).
3. Find someone who wants to buy the house cash (It won't appraise out for financing).
4. Raise the rent on the current tenant if the market will substantiate it.
5. Find a tenant who will RTO the home at a higher rent that will cause it to cashflow (check with the current tenant to see if they'd be interested first).

I'm sure others here will follow up with some more ideas.

I know this isn't what you want to hear because you looking to buy more properties, but I think starting off on a good foundation is the best thing you can do, even if that means taking things a little slower.

Good luck!