Used savings for first investment....But how do I️ buy second?

Question

Hi everyone,

New to the investment game and am looking for some great advice. I️ have not made my first purchase but am saving for that purchase. I’m thinking of my future and am not wanting to stop after just one investment. But I️ can’t seem to wrap my head around purchasing a second investment after I️ just used all my saving for my first investment. This is assuming I’m buying a multi-family that doesn’t need fixing up and I’m wanting to sit on and collect the passive income. Saving that 20% down payment for each purchase takes time and I’m looking for an easier way to add more property to my portfolio without going years in between purchases. Thanks everyone :)

Jay Hinrichs · Answer

were I see folks scale multi is usually with some value add sell that unit and 1031 into one bigger..

over time you will have more doors. its doors not necessarily address's your interested in.

friend of mine in Oregon started with a 4 plex and 15 years later through a series of 1031's and appreciation

ended up with a 300 unit in the mid west.. which became so hard to manage she had to move there.. but then she sold and came back to portland and bought a nice tidy 25 unit and a condo on maui.. LOL.

James Wise · Answer

That's the name of the game. Gotta have 15%-25% down to buy the properties. Good news is that you can do this 10 times.

Think about it, it's a great gig but it isn't a money tree. If you buy 10 properties valued at $100k you only need to spend $250,000 to own $1M worth of real estate. That doesn't include cash flow or appreciation. That is a wonderful business to be in but it's a "get rich slow" business.

Derrick Aragon · Answer

@Jay Dekker Worry about your first one. It is about compounding your income.

Paul Choi · Answer

@Jay Dekker

Simply put, to accumulate rental properties, you either need:

1. lots of money

2. time/effort to make improvements on the property to get forced appreciation.

To buy, do nothing and collect rent - it can be done but like you mentioned, it's gonna be slow.  Even 1031 exchanges will take time if you plan on not putting any more money into the next deal.  And that's betting that your property will appreciate so that you can acquire a bigger one for your next one.

If you have a long timeline, then you should be fine.  If you want to be abit more aggressive with growth, do #2 above (BRRRR) or better yet, do #1 and #2 with OPM + yours :)

Clayton Mobley · Answer

@Jay Dekker Unfortunately, you've already gotten the correct advice - REI is slow going at first if you're not looking to reeeally hustle for it. If you need/want to stick to a more turnkey strategy (buying props that are already tenant ready and then just collecting passive rental income) then getting from the first property to the second property is the longest wait. There is a point at which it all begins to snowball, but not until you have five or more properties cash flowing at once does it start to pick up speed (I'm speaking from experience in SFR, so perhaps the snowball tipping point is different for MFR).

As @Rick Pozos mentioned, you could consider partnering with someone on the second property, but you'd need to vet that person pretty thoroughly because going halvsies on an investment can be tricky, but can also be very lucrative. If you want to have everything in your own name, then you just have to grin and bear it for a while - save up as aggressively as you can, devote all your net cash flow to those savings, etc. Of course, you could expand your portfolio more quickly with SFRs, but if you're focused on MFR only, then you'll just have a higher hill to climb before you get to number two. Luckily, you'll get to number three more quickly.

You will also see a lot of discussion about using a HELOC to tap equity in your current home to use for investments, and there is heated debate on both sides. Do your research, but also make sure the risk is worth it to you. I'm more of a conservative investor, so I'd say slow and steady beats quick and risky :)

Since you haven't made your first investment yet, this is a little bit cart-before-the-horse, but once you have that first MFR under your belt, don't forget that you can always use the 1031 exchange to leapfrog it into bigger and better, or smaller and more numerous, if you find other, more lucrative, REI opportunities down the road. Not for at least a year or so (likely more if your MFR is a good investment), but it's a good option to keep in mind if you want to use the equity you have in a current investment to buy better investments elsewhere.

Best of luck!

Rick Pozos · Answer

When you say the less work the better, that means I am not really going to find a great deal. I am just going to buy retail like everybody else. Since this is the case, you will have to go into super savings mode. When you use your savings, you are done for a little while. Save up really fast for the next one. ALSO save up the cash flow from the first one so that you buy the next one really quick.

You may also want to try to partner with someone on your first or second deal. Maybe they can put in part or all of the down payment and you could split the deal.

I would say that you could wholesale some deals to get some cash, but you are not looking for DEALS by networking and marketing. But if you do decide to network with other investors and make this a real business, then when you come across some deals you could wholesale them. Most businesses do marketing or advertising to find customers. Your customers would be the distressed sellers who want to get out of their property quick and cheap.

Used savings for first investment....But how do I️ buy second?

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