First Investment Purchase

[Alex Gamino]

All,

My wife and I recently purchased our first investment property.  This experience was very exciting to know we now own a piece of real estate outside our residence.  We would like to keep this momentum going, however I am curious how we can leverage our new investment to purchase additional investments.  What would be the next step to purchasing another property without having to save up the required 25% down payment.  I am sure there are more efficient paths.  Any advice would be greatly appreciated.  Thank you.

[Jeff Shumway]

Hi Alex, congrats on purchasing your first investment property! I'm not sure if you've had much time to peruse the forums but many investors use the BRRRR method, meaning once they acquire that first property they renovate/improve it to force appreciation and then do a cash out refinance to get their money back out. BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat.

For example if you purchase a property for 100K with a 25K down payment and a note of 75K, you would renovate the property. Let's say the property is worth 150K after repairs. You could do a cash out refinance for a loan amount of $112,500 (.75% x 150K), pay off the original note of 75K and get around 30K cash back in your pocket after closing costs are paid. 

In this market, hopefully you won't have to do too much renovation and can just let the market appreciation do the work for you. 

A couple things to keep in mind- most lenders will require a 6 month seasoning period to use the full appraised value of the property. You may be able to refinance sooner than the 6 months but most lenders will base the loan amount off the original ex. 100K purchase price rather than the 150K after repair value. Most lenders allow a loan amount of up to 75% of the appraised value for an investment property. Keep this in mind when you're running your calculations. The minimum down payment requirement for a single family investment home is around 15-20%.