Second home to buy HELP

[Drew Slew]

I live around NYC in union city, NJ but question can be applied to every market. My bro lives in Denver, so maybe that market too for investment purposes. 

Last year bought a 2br condo for 145k that i rent 1 room out for $950/m, when i made 60k+commission. Live free now as house is on autopilot, and looking to build more rentals - either condos or single/multifamilies.

Now a year later 30k savings and make more, 75k+comiss and ready to jump in again. 

Would like to buy a new place either a cheap condo under 150k (hard to come by here now) to rent for 1400-1500/m or multifamily. Either around NJ close to NYC or Denver areas.

Looking for ideas on what would someone do in my situation. Great credit, not much debt, even do uber/lyft on the side so can throw a few thousand on any repair.

Would i buy a new place and make it primary residence for 20% down? 

Would i get other types of financing to buy a more expensive house, as i have solid financial to fall back upon if something goes wrong? 

Would i just save and invest somewhere else? 

Goal would be to have 5-10 rentals generating few thousands free a month.

[John Errico]

Hey @Drew Slew! It's a good question... I think part of the challenge of real estate investing is figuring out how to be creative with financing options to achieve what you want. Some general thoughts:

If you want to buy an investment property as a "pure" investment property with conventional financing, you're more than likely going to have to put at least 25% down for the class of property you're interested in acquiring. You could conceivably purchase your next property as a primary residence (and then, actually live there), but obviously this would limit your cash flow on that property since you'd be occupying some or all of whatever you purchased. I'm sure you could easily run the numbers, though, and see what your cash flow and living costs might be (could you rent out the entire condo you're currently at for 2x of what you're currently generating in rent, for example?).

The advantage of buying as a primary residence is that you can put way less than 20% down--hypothetically as little as 5% for conventional loans (or 3.5% for FHA loans) with some limitations on the time of property you're buying and so on. That's a pretty tremendous way to take advantage of leverage since the amount you'd put down is so low, and you're building equity you can then borrow on in the future and possibly living for free, even if you actual cash flow on that given property is low. You can certainly buy a multi-family home as a primary residence, for example, and "house hack" by renting out the additional unit(s) which would allow you to both take advantage of putting little down and also either living for free or even generating profit per month... I think the popularity of this option is certainly one reason why the price of small multi-families in the northern New Jersey area has gone up a lot recently.

It sounds like you got a good deal on the condo--you could consider taking equity out of that to put towards a down payment (HELOC or refinance, for example) or other purchase of a house, particularly if you're in a situation where you need to put 25% down--though some lenders may give you a hard time about, say, using the proceeds of a HELOC for a down payment.

For buy and hold type properties I generally don't think "other" types of financing (like bridge loans or hard money loans or whatever) generally make sense, at least not for the greater NYC area, unless you truly need immediate liquidity and are anticipating paying it off from some other sources of funds very quickly, or you find a deal that you can force appreciation in by renovating (like a flip, but you end up holding it). Even if you were to find such a deal, appraisals are always a pain, so I'd be worried about refinancing out of the loan if the house doesn't appraise at what you need (plus you'd need a fair amount of capital to renovate it and possibly even acquire it to begin with)

Another option that may or may not be available to you sort of depending on your personal network would be finding more passive investors (either debt or equity). You could arrange for them to own part of the property that you acquire, and you can take a management fee, or finder's fee, or anything equivalent for finding the property and putting together the deal. If the market continues to appreciate it as it is, you could hypothetically buy them/refinance them out later, so long as this was permitted in the agreement you structured with them. Local banks might be more willing to be more creative with financing particularly with partners (for example, you'll likely have to personally guarantee the note but if you were working with partners you might be able to charge a premium for doing that, if they're not also guaranteeing it... and so long as your bank permits you to do this).

There are probably an infinity of other more creative options available, but, realistically, at least in the greater NYC market, your options are limited by the general price of most properties, and by the market (lots of demand at the moment, relatively little supply), so those are some of the strategies I've employed. Unfortunately, even making $1k/month on a, say, 2 family property with a traditional/amortizing residential mortgage (which would be pretty good!), it'd still take quite a while to save up for a second property, presuming you'll have to put 25% down again and don't have any other creative financing options at your disposal.

Best of luck!