Purchasing Second Multi-Family Property

[Symone Gordon]

Buckle your seatbelts - I'm a newbie with a lot of questions :)

I just purchased my first property in January - A duplex. I purchased it using an FHA loan with tenants already in place. I'm ready to refinance it for a lower interest rate but I'm also ready to purchase another multi-family property. My duplex has gained about $50K in equity and I'm wondering if I should use that equity towards purchasing another property? Or should I use a DPA program to offset closing cost? If using equity, what is the best way to do it?

Also wondering if I should throw this sucker into an LLC or take advantage of homestead benefits first of the year? Any recommendations for a good tax consultant who specializes in real estate would be awesome.

My goal is to own 6-8 multi family homes - I'd love any advice on the most efficient way to do it.

Thank you!

[Jody Sperling]

I'm not a CPA, but I am married to one. That said, I can't give you tax advice, but I can share the most efficient way to hit that 6 to 8 multifamily ownership you're working toward.

The first thing is to build the right base. Instead of refinancing out of the FHA into another amortized loan where you'll pay thousands in fees and closing costs, find a commercial banker at a local bank where you live. Almost every bank will have the product you need, but most banks will make it hard to find. Don't give up until you get it.

The product you need isn't on the residential lending side, it's commercial. It's called a First Lien HELOC and the fees to get it set up are a fraction of the cost of refinancing. What it does is it replaces the mortgage on your home with a Line of Credit. Because you occupy the residence, most local banks will give you 95% access to the line of credit. That means you can use the money up to 95% of appraised value, freeing up that 50k you want to use.

Unlike a mortgage, where you're charged for the money as soon as the refinance is signed, with a HELOC, you aren't charged interest on money you aren't using. Now this is the important part. You can go and buy another property, at any point, and you can use the HELOC's available funds. But even before and after, you want to change how your money flows.

Instead of a house payment, you have a new checking and savings account. You can still track it in Quick Books or however you want so you know what is what, but you want to park all of your paychecks in the HELOC. Remember, the funds are there to use whenever. Put every dollar you earn into the HELOC until you need to use it to pay bills. Effectively, it's like making extra payments on a mortgage, except you can then pull the money back out when, say, a credit card comes due. But in the meantime, you saved yourself interest costs on the HELOC.

People who do this, can pay off mortgages in 5 to 7 years without changing their spending habits. You'll never "pay off" the property because you'll keep buying more multifamily, but you will build your savings for purchasing power really quickly.

Look up velocity banking if you want videos or more articles on how this works. It's the most efficient, cheapest, and powerful way to build your portfolio. Best of luck!