Question about my real estate journey

[Tamim Bedar]

Dear Community,

I am 43 years old and own my primary residence free and clear. My income is $70,000 annually from a W2 job and I have no outstanding debt. I am married with children.

I am interested in purchasing my first rental property, which I estimate will cost $200,000. To make a 25% down payment, I need to save $40,000 more over the next 3 months. Currently, I have only been searching property listings on the MLS.

I am seeking advice on whether to purchase an additional primary residence now with 5% down and rent my current owned home, or wait 3 months to save the full down payment for a rental property. I also welcome perspectives on utilizing a HELOC, other financing options, or keeping my primary mortgage-free. My primary residence's current market value is $250k.

My goal is to purchase one investment property annually. I have an excellent credit score. What recommendations would you have given my financial profile?

I appreciate any factual guidance the community can provide. Thank you.

[Glen Wiley]

Sounds like you are in a great position financially, congrats on choosing real estate!

A few things I'd keep in mind:

1. The power of leverage is the largest part of wealth building in real estate. You earn appreciation based on the market value of the property, not your equity. At 75% LTV you are making 4x as much as you would by owning the property without a mortgage.

2. Interest rates for primary residence are typically about 1 percentage point lower than conforming investor loans so if you can buy a new primary residence and rent you current one out you will save a lot of money on interest payments.

3. Re-read #1 - consider a cash out refinance on that primary then use that cash to buy more real estate.

Many of our properties are now in "infinite return" on our investment because we refinanced to pull our original investment out so we are making cash flow and appreciation but actually have $0 invested in the houses.

I did the 1-2 houses per year for quite a few years, sold some to reallocate investments at times and found that was about the maximum pace I could handle while working my W2. I encourage you to work on that plan - it will deliver results long term that you will be very happy with.