Please Help - Second Property Investment Route

[Mitchell Poloskey]

Good evening,

I purchased a townhome in Houston, Texas in August 2020, locked in at a 3% rate with a low 5% down payment on a conventional loan for $284k. I currently sit at $258K to go on the mortgage and did this through a small bank, which I believe approved me for such good financing at the time. The property is now valuing minimum at 365K via Zillow, HAR, and in the 400's with CreditKarma, with identical / neighboring units selling +$20,000.00 more than those estimates. 

With the equity built since 2020, I am trying to determine the best way to route it through BRRRR and begin snowballing my portfolio/capital availability. I purchased the property after reading Brandon Turner's Rental Property Investing, and with what I learned, planned to purchase 1 property per year for 7 years to develop a solid stream of passive income. I have not pulled the trigger yet on a second property due to risk averseness, lack of capital and analysis paralysis. Could someone please advise an actionable step or game plan I can follow to tap into my equity correctly (if that makes sense here) whether that's HELOC, Cash-Out or another strategy? However that looks, what next?

I would like to eventually leave my 9-5, pay off student loans and get rid of PMI on my first property ASAP.

The townhome is my primary residence and I will answer any questions and be grateful for any guidance.

[Carl Millsap]

Mitchell, 

I always encourage people to take action BUT I also try to ensure they count the cost before they move forward. 

Some things to consider:

1. If you refinance at 80% value ($365,000 *.80) = $292,000 - $258k balance = $34k net before refinance closing cost. Do you have something in mind to purchase that a $30k downpayment will make sense?

2. Can you make the payment on the $292,000 loan for your primary if the tenants don't pay rent? 

3. Can you pay all of your bills, mortgage for the rental and potential maintenance bills for a rental if the tenants don't pay their rent or if the place is vacant and needs rehab after the tenants destroyed it? i.e. deductible for a roof replacement or replacing an HVAC unit or replacing a hot water heater? 

You can always put in sweat equity to do repairs / renovations but you still have to pay for supplies and other associated bills.

4. Do you plan to manage the rental yourself or will you have a property manager? 

 Work through the questions above and figure out HOW to do it. This business is a thinking man's game...solving problems is what we do, this is just the first of many. 

A. I wouldn't put my personal residence at jeopardy that's just me. Keep the 3% rate.

B. What can you do to save / get the money to buy your first investment property? Work a 2nd job, cut back on current expenses?

C. Owner financing on a deal? Creative financing options, partner w/ someone?

There are options, some will take more thought but it can be done.

Hope this helps...