How to go from deal #1 to deal #2

[Colin Leach]

I finally took the plunge and purchased a buy and hold rental property in Oct 2017. Rehab went a little over budget. Rehab took a little longer than expected. Took a little longer to find a tenant because I believe I slightly overpaid so I wanted slightly higher rent than the area calls for, cash flow ($100) is lower than I expected BUT... I did get it all done  and I have a tenant which leads me to my question.

How do I get money for my second deal? I used up most of my cash reserve for the down payment. I have some money in my 401k and I can get a loan against it for a down payment on my next property. Maybe I can find some private money, but my question is how do I pay for the private money or pay my loan back? The numbers below are an example. It cash flows $180 after everything, but if I did 401k loan, it would cost me $340 a month to pay back that loan ($20,500 over 5 years at 2.875%). So I have loan payment for $340 - $180 leaves me with paying $160 a month for 5 years.  Do I have to find a deal good enough that it cash flows above what I would need to pay for my loan (in this case it would need to cash flow $340)?  And the answer may be to save up the down payment while I sit on this first property. Just wanted to get others opinions.

Example numbers:

Purchase price: 70,000

Down payment: 14,000

Estimated repairs: 1,500 (figuring close to rent ready)

Closing costs: 5,000

Rent: 1,000

P&I plus hold backs: 820 

Cash flow: $180 (10% COC)

So all in for me is : $20,500 (down payment, closing costs, repairs) which I don't have right now.

[Colin Leach]

Originally posted by @Joe Luciano:

This is a great question and I’m interested in seeing some experienced members give advice on this. I have not taken the plunge yet and quite easily could be in the same position after my first deal.

You need to take the plunge.  I feel like that I started small enough so if things we extremely sideways that I could sell the property and get out of it. Now I might take a loss and it might hurt my feelings, but it wouldn't bankrupt me or anything. Knowing that, I took action and made the purchase. I know there are risks involved, but the rewards outweigh that. I'm not one to sit here and think I am going to make millions of dollars in real estate. I am just looking for that financial freedom. If I want to keep my 9-5, I can do that. If I don't, I can do that, too. I just want to get to the point I can choose. Also, I have a family and young kids. I want to be able to make memories with them and I believe real estate can make that happen more than anything else. You can sit there for years debating and analyzing, and then you will look up and your life has passed you by. I know I am not an experienced investor, but no one was when they started. You have to start in order to get there.