How do you get to the second property after acquiring the first?

Question

After securing my first multi unit under FHA how do I purchase the next property without having the funds to renovate a new acquisition? I'm trying to gauge my steps and I was wondering how do I keep this momentum perpetuating to a successful portfolio with limited funds to work with? Any relevant advice would be appreciated. I'm investing in NJ. Thanks everyone.

Kerry Baird · Answer

Most of us have the ability to obtain 10 conventional mortgage slots at this point in time. And then there are portfolio options afterwards, from loan 11 onward.I see two main options:1. Save up. Get serious about saving for down-payments. The first 6 investment mortgages are 20% down. An option would be to fill the early mortgage spots with multifamily 1-4 units, to improve cash flow per transaction. Mortgages 7-10 typically require larger down payments of 25%, and at this time credit scores of 720 are needed. Reserves are also needed for all of the houses, except the one you owner occupy. AFTER you get your first 10 properties in this manner, go to portfolio lenders. I recommend you listen to a recent podcast by Jason Hartman, episode number 758 where he recently interviewed one such lender. This lender discusses what the requirements are for their longer term private equity lending. The interest rates are higher than conventional, but this lender, and other similar lenders, are able to finance properties in entities. That is something that is challenging to obtain in the conventional world, as conventional lenders do not often want to lend to entities, such as LLCs. Additionally, the lender in this podcast is able to bundling a few houses under a single loan. 2. Buy one owner-occupied building. 4 units gives more cash flow, again. Rent 3 units and live in one. Remain in this property for one year, to fulfill the obligation set in place by the lender for owner occupied properties. Move out and buy another. Understandably, you might not want to live in a multifamily property. However, owner-occupied situations provide the lower interest rates, and smaller down payment requirements. Do again 12 months later. Do again 12 months later. Keep on. The best interest rates and down payments are on owner occupied houses.

Greg Mahanna · Answer

The way I did what you are considering is this:Live in the first multi, in one unit, while doing renovations, and tightening up/raising rents. Your Reno costs are materials only if you are handy. A year later, do a cash out refi, capturing your sweat equity, and put that money down on the next. You may want to approach a local bank versus a mortgage broker. Local banks, that know the market, may be easier. Good luck!

Jason Hartman · Answer

Thanks for the mention and I'm glad episode # 758 was valuable, @Kerry Baird

Walmsley Gedeon · Answer

Kerry Baird very valuable info.. it's much appreciated

Tim Davids · Answer

join a local RE club. There may be people right there that will fund you or smart small banks as members

Rich Hupper · Answer

congrats on the successful start. This question has plagued me as well. I wish I knew how banks qualify borrowers who own many income producing properties.

Matthew Maggy · Answer

Renovation loans (non-203k, like Homepath for example) are still an option for you since you only have one mortage. Some people shy away from them due to costs and some other limitations, but if as you factor the costs associated with them (draws, etc.) into your numbers and they still make sense, I think it's worth it. Once your past your first 4 loans though, Fannie Mae Homepath is no longer an option.One way that we got enough money to purchase the next w/ a reno loan was paying ourselves rent as if we were a tenant. It's also good because it will give you a chance to simulate what it will be like to rent it once you move out.To be fair though, we are not in Brooklyn, NY. We live in a market where a solid rental property can be had for $50-70k; so our down payment on a $46k home with an $18k reno was only $17,500 (including closing costs which were a bit high and we will be shopping lenders on the next one!).

Walmsley Gedeon · Answer

Greg Mahanna ok that sounds like the right course of action. Totally appreciate it Greg. Brandon L. Absolutely that is where my head is at right now, my first deal. I just needed to know how people continued to acquire more and more properties. Nonetheless, great advice. Thank you gentlemen.

Brandon L. · Answer

@Walmsley Gedeon the process will be almost identical to getting your first property. So I feel the best step would be to locate a variety of lenders and show your success with the first property. If you do great with the first one, maybe one of them will finance your second deal.So focusing on the first property to make sure everything is successful would be a top priority right now.

Walmsley Gedeon · Answer

Brandon L. I'm in the process right now. I'm just thinking ahead. I want to acquire at least two by next year.. thanks for the reply.