Leverage primary residence to buy investment property?

Question

Greetings all,

Love your opinions on how to go about getting a second (investment) property after purchasing my current 2 family home in 2016. House is worth about $650K, owe $200K in mortgage (purchased at $505K, currently renting out 1 unit and live in the other here in Queens NY.)

Current situation:

Next multi family property ~$650K

$30K cash at hand

What's everyone's opinion on the best way to go about this? Heloc or equity loan?

Ideally is to purchase the investment all cash and refinance to a 30 years traditional. Appreciate any advice

Marc Winter · Answer

@Benjamin Qiu, first, congrats on finding a good Queens multi family for that price.  What part of Queens?

Now to your question:  if your current property is worth $650k, a decent HELOC would appraise your total debt at about $490K (75% LTV).  That would put $290k in your pocket.  Not sure how or why you want to / plan on buying the next property for $650 cash.

Suggestions:  Keep your $30K on hand for a rainy day.  Do the HELOC, put down $165 on your purchase of the new property, and take a first mortgage for the balance of about $485K.  Run those numbers:  If they make sense, do the deal.  If they don't make sense, you must know how will you subsidize the negative cashflow?

In NYC, after 30 years as a broker there in Queens, I can say it's almost always an 'anticipated appreciation' play, not a cash-flow positive.  Unless of course you plunk down enough cash to make it work, but that's a hefty chunk of change.

Good luck!

Tyler Radford · Answer

Hi @Benjamin Qiu I'm in Kew Gardens and looking to do something similar. I'll message you.

Marc Winter · Answer

@Benjamin Qiu, ah, now I understand.  Richmond Hill has always been, IMO, undervalued.  It's kind of sleepy little town, but it's got the train and reminds me of Elmhurst on Roosevelt Ave under the 'El'.  Good luck to you and extended family.

Benjamin Qiu · Answer

Thanks for the reply @Marc Winter

The home is in Richmond Hill Queens right off of Forest Park, it was priced at $505 because it was a fixer upper (also slightly smaller, we put $65K into renovation), and before the neighborhood really picked up in price in the recent years.

The reason to buy a property locally is more for my family, they want something close by with a better chance for appreciation (eventually) and something that our relatives can move into in the future so we can be in the same neighborhood. Eventually I'll be looking into multi-family in upstate or PA with the focus in cash flow.

Appreciate the numbers, will be working out the numbers more and find out how much I'll be qualified for.

Leverage primary residence to buy investment property?

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