Stalled on buying my 3rd Property - How to push past?

[Nick Burkhardt]

Hi BP crew! So excited to reach out today. Hopeful that I can get some advise to help me keep pushing forward in my REI journey! I purchased my first 3 unit FHA in APR 2018, and then my second property, a 5% down duplex in JAN 2020 (currently occupying 1 unit). I have $41K in savings and quite a bit of equity in the props already, due to market appreciation! My agent who is really more of a mentor, told me early on in this journey that "Savings don't buy houses, houses buy houses."

I have this decent savings built, but would like to hold onto it as E-Fund, CapEx savings and coming up here pretty soon, a new vehicle (will buy used). I reached out to my lender (used on both deals) and tried to get preapproved for a 5% down owner occ loan on a single family with an in-law apartment (duplex). I was wasn't approved because my DTI: is too high now. I'm looking at my savings and saying it isn't quite enough for a 3-4 unit in the area at 20% dp, and I'd be leaving myself vulnerable. I see the equity I have, despite buying with low downpayments, and keep thinking; am I going about this wrong? Am I attempting to save more, when I should be looking at doing what my mentor said years ago - use the equity I have to buy more houses.

Prop 1 (3.5%dp FHA 2018) - Purch. Price $373K - Current Market Value: $525K

Prop 2 (5%dp Conv. 2020) - Purch. Price $280K - Current Market Value: $460K

I need some ideas to think on, terms to research and advise on how to get this ship moving again. I don't want to stall out with 2 properties at 31 y/o! Have to keep pushing! Thanks BP! Love you all, and have a great day!

[Kevin Sobilo]

Sell property #1, use a 1031 exchange to avoid paying income tax on your proceeds from the sale and then use that money as a down payment to buy 2-3 more properties.

By selling property #1, your DTI should improve, and for the new properties you may want to focus on things that cashflow better. I suspect that your DTI was too low because those properties were too expensive relative to the rent. Fortunately you bought at the right time and were able to get some nice appreciation.

Also, consider starting an LLC and using portfolio loans in the LLCs name with you as guarantor. These won't show up on your credit report and the financing will be based on the property being able to cashflow on its own not on your personal finances so much.