Am I ready to Buy My Second Investment Property??

Question

Hi All,I currently have a Duplex (owner occupied) in the Fort Lauderdale area. I've had it for almost 2 years now. I would like to buy a second investment property this year but I'm paying down credit cards to raise my Credit Score to qualify for good rate. This shouldn't take long because my credit is not that bad and have low cost of living. My issues are:1. I won't have alot of money to pay down on the property because I used it to pay down credit cards.2. Investment properties in this area are profitable but pricey. All over $200,000, which means 20% down is alot of money.3. Already on FHA and my husband doesn't want to move into another ( I may convince him if it's significantly bigger or nicer). For this reason, it would be considered totally investment by financing standards and that's more down payment required.4. Thought about Home Equity Line of Credit but not sure if it will be enough for down payment. 5. Should I have home appraised to learn how much equity is in property? Should bank appraise or should I pay for appraisal?What should be my next move? Any advice. When giving advice, please keep in mind that I am a small timer with limited resources and not as much knowledge. I know a lot of you are well-seasoned investors. BiggerPocket friends, thanks in advance.

Adam Schooley · Answer

I would refi into a conventional loan on your current property and then go for the FHA loan on your next property so you could take advantage of the 3.5% down.

Omar Khan · Answer

@Jheanell Rodney I would suggest singularly focusing on paying off your credit cards. Most credit cards have a 18%+ APR. You will be hard pressed to find an investment that consistently returns 18%+. It will also have the added benefit of making you appear more credit worthy, increasing your FICO score as well as lowering your overall cost of living (as you will not be paying credit card related costs to catch up with your balances). As per @Juan Vargas point, you do not want to be over leveraged. Be patient, be hungry and stay focused. You will kill it!

Michael Guzik · Answer

Hey @Jheanell Rodney congrats on taking action and good on you for doing a house hack! In my opinion I think you should definitely get your property appraised and see about a HELOC. I'm sure you have taken great care of the property and sound very responsible, so I wouldn't be surprised if it was appraised higher than you expect. In all honesty if you have a great relationship with the bank I would ask them what you could do and see what ideas they have. You may just have to wait and be patient which can be hard for people like me who want things ASAP. Good luck and keep working hard I'm sure you will be successful in no time and get that second property!

Ray Harrell · Answer

Some of the same questions I have. I'm looking to purchase another 3 flat this spring, owner occupied. I've been in my current one for a year and ready to get another. Can I now get another FHA with 3.5% down? Can I use the rental income from my first property to qualify for another mortgage along with my salary?

Jheanell R. · Answer

@Adam Schooley A mortgage broker advised, it makes no sense to Refi because my rate is currently at 3.5% for this property and I would never get that rate now. He said I can either get a HELOC on my primary, get conventional Fannie Mae Homepath loan which is 3% down for new property or look into first lien HELOC (very complicated loan). If I do a Home equity loan on my primary, I'm only getting around $50,000 which I'm not sure what to do with because properties here are so expensive. It wouldn't go really far unless I get a condo and I've heard those are little to no profit and a headache. I'm leaning towards getting a HELOC but not sure what to do with it being that I live in an expensive area. Trying to get the most value for the money. Any advice would be greatly appreciated.

Alison Lamers · Answer

Hi @Jheanell Rodney! I say go for it! My husband and I are in a very similar situation to you - we are currently living in a duplex and are planning on refinancing soon to pull out some money for our next purchase. We are probably going to be living in our next investment, but our thought is that it will be worth it in the long-run because it will allow us to build our investment portfolio faster. I would look into refinancing out of your FHA, so that you can do another FHA, or even an FHA 203k loan, on your next property. Good luck!

Juan Vargas · Answer

You can have it appraised but you also have to think about being over leveraged. You really don't want to be significantly over leveraged come a down turn. If you can convince your husband to move into another property, it might be the best way to go.

Caleb Heimsoth · Answer

5. You can have a realtor run comps for free usually and that’ll give you a good idea as to what it’s worth. If you want a formal appraisal, you’ll pay for that almost always. I’ve never seen a bank say they’ll pay for it

Caleb Heimsoth · Answer

1/2. Non owner occupied rentals are 15-25 percent down. So you can either wait until you have that or invest in an area that is cheaper