Ready for two more apartments in 2024

[Bianca Cadogan]

Hi everyone. I currently own a 4-unit apartment in Montgomery County MD. It's going well now that I've fixed alot of problems and I'm ready for my next two as I put all my focus on this one. My credit isn't too high due to me fixing up the property. I know the value is up but my credit is down. I'm looking to purchase some properties in Phoenix, AZ and Cleveland, Ohio. Would it be best to wait to fix my credit so I can take out a HELOC or finance the properties using a hard money lender?

[Kerry Baird]

It becomes a bit of a conundrum where you could use your income in several ways: save up next down payment or pay off debt to improve FICO.  My thought, having been in the same pinch is to look for seller financing, a tired landlord who wants to sell on payments. I have purchased a handful of properties this way.  

Since you have the experience of this first plex, you know you can do it again.  This is my thought if I were in a similar situation:

I’d save up down payment funds, while also using the debt snowball to pay off debt, and start looking for your next plex.  You could search for small multiplex owners in your local recorder and I use PropStream.  I hand write letters to owners who have owned for some time.  You know that 5 units and up are more difficult to get financing for, so that might be your target owner.  With my down payment, they could sell to me without having to fix up, and if they owner finance they would receive their profit over time which would spread their capital gains over time (rather than a big tax hit all in one year).  

I pay 6% interest only to my sellers.  It looks like this:  $400k purchase price.  I paid $100k down and they carry a note back for me of $300k.  I make payments to them of $2000 a month.  We close at a title company or seller’s lawyer.  I get insurance and do an inspection as with other properties.  

No agents in the middle, so I have to negotiate for myself.  But my FICO does not matter, and my closing costs are quite low because I don’t have origination fees, etc.  

Food for thought.