Buying a second multi-unit property

[Irving Gonzalez]

Hello, 

I am looking for advice on how I can leverage my first investment property (house hack), to help purchase a second property. I have reserves saved up for my first property. I am hoping to see how I can purchase another property without dipping into my personal funds. I just started to look at HELOC's, and don't think it'll be worth it to refinance because my low interest rate. So looking to see if any of you have had any luck in a similar situation or know of options out there that I don't know of. Any advice is helpful!

First property: 

Purchased: 2021

Interest: in the 2's

Purchase price: 375,000

Estimated value now: 430,000

If more information is missed or needed, I'll gladly share!

Thank you!

[Caleb Brown]

What do you owe? HELOC wouldn't be bad but if you are doing another house hack I would use the cash you have and not borrow for the DP. To me it's risky to leverage to get another loan. You do have an amazing rate so don't refi. Also what would you cashflow when moving out?

[Irving Gonzalez]

I owe $345,000. 

after paying the mortgage and all utilities I would cash flow $500/month. 

I am open to doing another house hack or purchasing a pure investment property and staying put in the first property. 

[Paul De Luca]

@Irving Gonzalez

I agree with @Caleb Brown. Personally, I wouldn't want to have to borrow against my property (using a HELOC) and a cash out refinance won't make sense given your low rate.

I recommend doing another house hack using your personal funds.

Connect with @Zack Karp if you want to explore the HELOC route more.

[Erik Estrada]

There is not much equity in this property to do a HELOC or a Cash Out. You can possibly do a HELOC with a local CU, at 90% CLTV and get a credit line of $40k. But you would need to find a bank that can go that low of a loan amount.

[Koren Lavi]

@Irving Gonzalez

Usually you have 4 options for leveraging a property to help pay for another: selling, cash-out refinance, HELOC, or a home equity loan. With an interest rate in the 2s, cash-out refinance and selling should be out of the equation.

I work with a lot of investors who use HELOCs and home equity loans for down payments. They are not as scary as some make them out to be, you just want to be certain that you can regularly contribute to the principal of the HELOC/home equity loan (on top of your monthly interest only payments), so you can pay the balance off within a reasonable amount of time. With HELOCs and home equity loans you can typically pull out a max of 95% LTV, but that number could be less depending on credit, property type (primary vs investment), loan balance, etc. Based on the figures you gave, you have about $85k of equity in this property, and could have access to as much as $80k of that.

As a disclaimer, not all lenders would approve this, but there are definitely some that would. Make sure you find a good mortgage broker that has access to more than a few loan products. 

[Irving Gonzalez]

Thank you @Paul De Luca @Erik Estrada and @Koren Lavi for sharing what you all think. I'll definitely keep saving and see where I am in over a year. 

In the meantime, I'll learn more about the HELOC and home equity loans out there for when the time comes.

@Paul De Luca Why would you recommend a house hack vs an investment purchase? 

[Paul De Luca]

Quote from @Irving Gonzalez:

Thank you @Paul De Luca @Erik Estrada and @Koren Lavi for sharing what you all think. I'll definitely keep saving and see where I am in over a year. 

In the meantime, I'll learn more about the HELOC and home equity loans out there for when the time comes.

@Paul De Luca Why would you recommend a house hack vs an investment purchase? 

All else being equal, it is less cash out of your pocket. But if you can find a better opportunity for 20-25% down with a higher mortgage rate and about the same amount of cash out of pocket, you could consider that instead. Whichever makes more sense for you depends on your budget, target areas, ROI goal, etc.