Looking to purchase my 2nd Multi-Family property

[Leroy Fryer]

Hi all, last April I purchased my first multifamily property. It has definitely been a learning experience. Lots of ups and downs. My goal is to at least buy one additional property a year. I have had challenges with the first property, but by April I should have all the bugs worked out and have three good paying tenants and very little issues with the property itself. 

I currently have $62,000 in equity in the current property. I would like to use the equity to purchase another multi-family property. I've found quite a few around a local college. My questions are, what are the benefits or drawbacks of using the equity I have in my current rentals and how do you feel about renting in college areas?

Thanks in advance 

Roy

[Brittany Minocchi]

One very important thing to note is that you won't have access to ALL of your equity. You may have $62,000....but you won't be able to use $62,000. You'll also want to figure in your new HELOC or mortgage payment into your cash flow numbers and make sure you're still good.

if it's currently worth $300k and your payoff is $238k: 

Let's say you look into a HELOC and the lender goes up to 90% LTV. That means 90% of the value will be used to determine your loan amount, so $270k. Now deduct your outstanding mortgage - you're left with $32,000 of accessible equity. If you did a cash out refinance, you'll max out at 75-80% LTV, reducing the amount of equity you can pull even further and closing costs will be higher. HELOCs have variable rates and are interest-only payments at first, then the balance is amortized. A 10-year interest only draw period is common. They are second position liens, so they don't have any impact on your existing mortgage. A cash out refi is a fixed rate, but is a lump sum loan that will replace your current mortgage (and your current interest rate).