Pay off mortgage or keep cash for next property?

[Drew Denham]

Hi all,

I flipped two houses (out of my 401K) and paid off my debt and i'm currently renting my only residence. I moved to a new city and i'm looking to dive into the Grand Rapids Mi market. I have about 10K cash and pre approved for $150K. My strategy was always to keep flipping until I had enough cash to buy a rental but I know the window for cheap houses won't be here forever. What is a good strategy to use? Get a house to live in (and fix up) and hammer my one mortgage (with it currently rented)? Or finance a house then keep looking? For example, buy two houses at $75K each? Looking forward to your responses!

[Kevin Romines]

One school of thought for someone looking to buy and hold is to buy a 2-4 unit property as owner occupied. Live in one unit and rent out the other 3. You must owner occupy the property for 1 year, but you could feasibly rinse and repeat once a year.

You can get an FHA mortgage for 3 1/2% down for the purchase. You can even take out an FHA 203K loan for the purchase and rehab of the units, thereby increasingg the value and rental income and still only pay 3.5% down payment.

Where else can you get such a great financing deal on what essentially is an investment property? I would really consider refinancing them as non-owner occupied after any rehab is done, primarily to get rid of the mortgage insurance. I know several buyers that have done this to build a great investment portfolio all at owner occupied rates and down payments.

Get used to moving :)