Which leverage: How do I buy our next multi-family property?

[Wesley W.]

Hello folks,

I once again am imploring the collective wisdom of those on this forum with more experience than I.

Some background: my wife and I currently own 3 financed properties: our primary residence (HELOC, my name only), and two 4-family rentals (both our names on one loan, just hers on the other). They are held in our personal names. We both have great credit, no debt (aside from RE), and well paying, secure W-2 jobs.

We will soon purchase our next property (another 4-family rental), which I plan to put in my wife’s name exclusively. My wife will be leaving her job in the fall to go back to school, at which time we will buy another property (in her name) near the school for her to live (and rent out the other units). This will give her 4 financed properties. I will then leverage my W-2 job to pick up additional properties while she is attending school. Once she is done, we will flee South where we will both become self-employed (myself via RE holdings).

This latest property (currently under contract) will have a purchase price of around $105K, with between $20K-$40K of rehab needed, depending on how updated we want to make it.

QUESTION: How should I finance this next purchase, given our long-term plan?

Option #1: Buy this next property with cash and pull most of the equity out with a refi/HELOC. How soon can a refi be done after closing? (We want to redeploy the capital.) After a refinance, does this expose us to any more liability? An asset search would still yield the property as leveraged, correct? Right now we have a commercial umbrella policy in lieu of using LLCs to hold title. (Since we were taking out conforming loans, we couldn't hold in an LLC without risk of DOS clause.)

Option #2: Once again buy using a conventional loan. My concern here is spending an inordinate amount in closing costs compared to the actual loan amount. We want to use loans whenever possible at this point so we can leverage our W-2 jobs while we have them – but I am wondering if it’s the right thing to do given the size of the loan (~$75K) and the expected closing costs.

Option #3: Something that I haven’t considered, but one of you insightful people will suggest.

Thanks again for your suggestions and advice!