How Can I Purchase My Third Rental Property?

Question

Three years ago I purchased my first investment property with an FHA loan buying a property in Newark, NJ for $375,000.  I put 3.5% down on the 3-family property and owner occupied one unit with the other two rented out, only to fully rent out all three after the first year.  Currently , it is cash flowing about $1500 per month.  Each unit is a 3BR , 1Bth apartment each renting for $1500 per month which I’ve been told lately I should be getting perhaps closer to $1800 a month after a few minor upgrades.

My second property I purchased was a 2-family 5 BR , 2BTH home in East Orange NJ bought for $240,000.  I purchased the property with a Fannie Mae loan putting down 5%.  I purchased the property fully occupied since I wanted to immediately cash flow.  I’m grossing $900 a month here considering there are no repair expenses (which I’ve been quite fortunate so far).

A little background information about myself: I’m currently 29 years old and have a full-time job.  Managed to save up the money I had at the time living at home working full-time to buy these properties.  I currently have about $30K left in savings.  My goal is to make as much money with my rentals as I do working full-time and ultimately exceed.

Here’s where I need help;

I’ve been told already I wouldn’t be able to purchase another rental investment property unless I’d put down 20-30 percent.  Are there any other creative investment strategies out there to get into another property?  I’ve thought about Hard Money , I’ve thought about buying an investment property with a friend and funding the FHA down payment in exchange for using their qualifications and credit.  I’ve looked into cash out refinancing but I don’t have enough equity yet in either property.  I’ve even thought about purchasing out of state so I can get another FHA property but this one is a little far fetched.  And lastly, I’ve thought about taking out a personal loan to fund a down payment since I have a very good credit score.

All comments/recommendations are welcome and if anyone has been in this situation before, please share your experience.  Thank you everyone in advance!

Jerome Manuel · Answer

Not sure if you are familiar with it yet but I suggest using the BRRRR method.  If done right, this will set you up to leverage the equity in the property to keep rolling into your next property so you don't have to sit and wait until you save more money to move on to the next.  One of the key things here though is that you need to find distressed properties under market value that you can rehab and add value.

If you have 30K now I would look into equity from your current properties, private lenders, hard money lenders, personal loan from a bank, etc.  There are a lot of different options you can explore you just have to not take "no" for an answer and get creative.

Hope this helps!

Dan H. · Answer

Before looking at investing into a 3rd property, I suggest you learn more about expenses, 50% rule, true cap ex/maintenance costs, etc.

Good luck

Derrick Dill · Answer

Refinance out of your first property (FHA), get rid of PMI. Then, go FHA again on new property.

Take out HELOC for one (or both) of your properties, use HELOC for down payment/ purchase

Jay Red · Answer

@Matthew McCormick Thanks for the reply!

Yes , I’m going to put further thought into investing a little cash into moderately revamping my apartments to get close to top dollar rent.  Also, on the second property in East Orange , one unit is a 2BR that is currently rented at $1100 (purchased the house with tenant paying that price).

Laith Faouri · Answer

@Jay Red

Hey what’s up I would recommend reading Brandon Turner’s book on real estate investing with low or no money down.

Marc Winter · Answer

Partner up with another experienced investor, IF you have a dynamite deal.  Find the deal and the money will find you.

Matthew McCormick · Answer

Very interesting. Following.

We also own 2 investment properties (one in Newark (north section) one in Bloomfield (currently house hacking)).

The Newark has a 3 bedroom unit currently at $1,600 and could be potentially higher if we fixed up the kitchen. I’d say increase the rent when you get the chance. It helps us justify rental increases across the board and you can show an extra $100/$150 in monthly cash flow.

Quick question, do you have a 2 bedroom unit? And if so what do you charge at?

Kody Thompson · Answer

Id just keep saving honestly and use a Heloc from your properties to put down on the next investment.

Hard money lenders can work but you always have to be aware of not only the high interest rates but the points they charge as well.

Hope that helps!

How Can I Purchase My Third Rental Property?

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