Options for purchasing another property ??

Question

Hi Everyone,

My Name is Ryan and I am from the Madison WI area,I currently own a duplex that I bought just over two years ago as an owner occupied property.  For this loan, my first mortgage, I did only have to put down 5% and also received an $8K down payment assist/first time home buyer credit which if I can remember correctly I had to remain in this property for 5 years in order to receive the full amount.  I have been doing very well with this property and have learned a tremendous amount of knowledge over the past couple of years.  With that said I was wondering what ways or options I have if I wanted to pursue another property??  Obviously I could just use a conventional loan at 20-25% down, but unfortunately I do not have roughly $40k laying around for a down payment.  If at all possible I want to move into the new property, most likely another duplex, and rent both sides of my current property.  Any help would be much appreciated!

Chris Heeren · Answer

Another option would be to take a look at the surrounding communities where prices may be a little cheaper. I know in some adjacent counties you can buy Duplex's for as little as $5k-$10k in down payment and still collect a pretty hefty rent check. This may not be an option if you are looking to live in the new property and want to stay located within the Madison area. The strategy I use in southern Wisconsin is to borrow a chunk of money short term, purchase the property out right in cash, complete any rehab work, rent out and the go back to a bank to refinance. I'm able to refinance at 80% of the appraised value which if you have bought correctly, can be more than the entire amount you've put into the property (including remodel work). I then take the money from the refinance and pay of the original loan that I borrowed to purchase the place.  I now essentially own a property with none of my own money invested into it but yet still have 20%-30% equity. The question is how many of these types of properties can you afford?  . . . .  as many as you can find!

Account Closed · Answer

Refinancing out isn't an option?

Ryan F. · Answer

I guess I never thought of it that way, just assumed it would always be cheaper and have a higher profit from doing everything myself.  I will have to look at what the market is in surrounding communities as well as crunch some numbers with management fees included.  Thanks for your advice and knowledge.

Chris Heeren · Answer

Would you not be open to having a property manager manage your properties if you were able to achieve a higher ROI than if you invested closer to where you live and had to do the management yourself?

I have many different area's where we initially get the money from: Personal Lines of Credit, Credit Cards, Private Funding, Unsecured Lines of Credit, HELOCs. We are thinking about doing our first couple of flips to help build an extra cushion to tap into.

Ryan F. · Answer

Chris,

Thanks for the advice, I will look further into how I can obtain the first chunk of money to do the initial buy.  Can you share your strategy on how you obtain this?  Also, I will be doing my own management so would like my properties to be as close to the Madison area as possible.

Ryan F. · Answer

Christopher, thanks for the response it is much appreciated.  From what you said I will start to take a look at the Madison REIA as well as the readings you had suggested.  I can look into taking equity out of my current property I just don't believe I have enough equity built yet as I have only owned it for just over 2 years.  Thanks again and hope to meet you in Madison sometime.

Christopher Patterson · Answer

Hi Ryan,

Based on your response I would strongly encourage you to read the BP book on Investing with Low and No Money Down while also attending the meetings for the Madison REIA. I think both places would give you fantastic information and the REIA would help you get your questions answered by experienced investors who want to help.

It seems to me that you might not have adequately considered your cashflows as you are discussing potentially losing 60% of your $8k assist but aren't sure how to come up with the money for a traditional loan down payment. Both the book and REIA can help clarify.

The final point I wanted to make was to clarify what Nick was suggesting: Could you remove equity in your current Duplex by obtaining a new mortgage and then use that recently liquidated equity as a down payment?

Ryan F. · Answer

Thanks for your response Nick, I am fairly new to this and am not familiar with banking strategies so I don't know what the best option would be for this but I will take a stab at what you mean.  Would you refinance the current duplex that is under a 5% down owner occupied loan with a 20-25% down investment loan and hopefully be able to use the current equity to do so.  After that then get another owner occupied loan at 5% for my next property?  Also, if I do this I will loose roughly 60% of my $8k down payment/first time buyer assist as it is a 5 year program and I have only owned it for just over 2 years.

Options for purchasing another property ??

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