Best way to acquire 2nd property?
Rental Property Investor · Grand Rapids, MI · Member since 2021 · 25 posts · 9 votes
I just purchased my 1st duplex in January. Renovated and tenants area now paying 100% off the mortgage.
What is the best way to acquire a 2nd rental property? I've already used my FHA so I'm thinking conventional 20% down?
Which route do I go to fund it? I’m starting to work more hours at my job to save 40k-50k. It’s not going to be easy but if there’s other routes to achieve capital too that’s easier I’m willing to hear it.
2 thoughts here. 1. Conventional doesn’t have to be 20%, it can be 5% or even less. 2. Does the second property have to be a house hack?
I ask because brrrr will scale much faster and 20% down will keep your money tied up. Food for thought. Best wishes to your success
I just purchased my 1st duplex in January. Renovated and tenants area now paying 100% off the mortgage.
What is the best way to acquire a 2nd rental property? I've already used my FHA so I'm thinking conventional 20% down?
Which route do I go to fund it? I’m starting to work more hours at my job to save 40k-50k. It’s not going to be easy but if there’s other routes to achieve capital too that’s easier I’m willing to hear it.
Many people have used the approach where after 12 months, they refinance the first property, go buy the next one with a new FHA loan and rent out the unit they were previously living in for only 3.5% down instead of the 15-20%. Haven't done it personally, but that was the approach I was looking at to get started. You could also look into a vacation home loan which only requires 10% down, as long as it isn't too close by. I have to keep reminding myself as well that those first few properties are always going to be the hardest. Buying rentals is a long-term play. No get-rich-quick scheme here!
Check around with different lenders, I do know there are some 10-15% lending options on investment properties. Also, if you start to examine owner finance options that could open up a lot of options for you. If you go this route spend time to really understand it, that way you can share with the seller WHY they should owner finance you! An owner finance seller is still going to want a down payment, but you could even set it up so that your seller even finances the down which gets repaid in the first year or two (this would be a set up that might work well with an AirBnB that has higher cashflow). Anyway, just some ideas.
There may be different options depending on the amount of capital reserves you have. You would have to speak to an experienced lender for a true preapproval. Please message me for more information .
Many people have used the approach where after 12 months, they refinance the first property, go buy the next one with a new FHA loan and rent out the unit they were previously living in for only 3.5% down instead of the 15-20%. Haven't done it personally, but that was the approach I was looking at to get started. You could also look into a vacation home loan which only requires 10% down, as long as it isn't too close by. I have to keep reminding myself as well that those first few properties are always going to be the hardest. Buying rentals is a long-term play. No get-rich-quick scheme here!
Thanks. I was actually watching a YouTube video today and I didn’t know about vacation homes 10% down and it needs to be a certain distance. Can that loan be used for a 2 unit duplex?
Check around with different lenders, I do know there are some 10-15% lending options on investment properties. Also, if you start to examine owner finance options that could open up a lot of options for you. If you go this route spend time to really understand it, that way you can share with the seller WHY they should owner finance you! An owner finance seller is still going to want a down payment, but you could even set it up so that your seller even finances the down which gets repaid in the first year or two (this would be a set up that might work well with an AirBnB that has higher cashflow). Anyway, just some ideas.
We didn't talk about specific criteria other than it not being in your same area, but it was actually brought up by a lender I was talking to regarding potential investing strategies. Something I'm considering when I'm ready to get into short-term rentals.
2 thoughts here. 1. Conventional doesn’t have to be 20%, it can be 5% or even less. 2. Does the second property have to be a house hack?
I ask because brrrr will scale much faster and 20% down will keep your money tied up. Food for thought. Best wishes to your success
The problem with that is you have to owner occupy the second house. Lenders are hip to that and will most likely deny you because they would not believe you are going to live there. You can't just move from one multi to another. The next home would have to be superior to the house you are living in and at least 50 miles away from your current home for an underwriter to approve it. At closing you sign an agreement stating you are going to owner occupy the dwelling. Not worth getting charged with mortgage occupancy fraud. They do check and its a serious charge if you get caught.
I just purchased my 1st duplex in January. Renovated and tenants area now paying 100% off the mortgage.
What is the best way to acquire a 2nd rental property? I've already used my FHA so I'm thinking conventional 20% down?
Which route do I go to fund it? I’m starting to work more hours at my job to save 40k-50k. It’s not going to be easy but if there’s other routes to achieve capital too that’s easier I’m willing to hear it.
Hi I thought there required a couple years between FHA loans at least?
Pretty sure you can only have 1 FHA loan at a time.
I believe if it's an owner occupy you can do a conventional loan for 5% down. That is the
route I would take. I think plenty of people move every year to build their portfolio this way.
Think only tricky part is getting a loan as have to qualify with the DTI for another property. I do
believe some lenders take into account some of the rent from the first place.
Have you considered: For your next deal, to buy a property with partners
Yea, between the FHA mortgage limitations and the current real estate market uncertainty I think you're best served continuing to build your savings for the down payment for a few more months at least. By January you'll at least be past 1 year and then you can consider whether you want to refinance out of the mortgage (not what I would do so soon) or not. Assuming you don't the 20% is the next best way to go (although you can look at 10% down and see at what that rate would be. Assuming you're not comfortable with that, I'd look at other real estate options. Add an ADU? Partner with someone else? Pay down your mortgage so you have a margin of safety in LTV (i personally prefer targeting 20% equity) to balance the unsteady market if nothing else is appealing. Or make investments outside of real estate
@Kerry Pangan
As something you will probably hear on here a lot, I’d suggest Brandon Turners book on creative financing, which I believe is called real estate investing with no or low money down. He lists a lot of ways to get investment properties without going the conventional 20% down. Ways that I’ve done this is house hacking (earlier in my career), finding family to live in an investment property, seller financing, partnering, or taking the equity out of your first investment property to put 20% down.
If you want me to elaborate on any of the above I am more than happy to!
Save up a downpayment. 5%, whatever.
Leave the FHA alone because of rates. I don't think you have to continue to occupy it, as long as it was true when you got it.
Acquire a second Duplex with a Conventional loan (can do 5% down), move into the Duplex. Rent out the unit you vacate. Now you have 3 Tenants + you. You should be able to count on a decent percentage of the rent as your income to qualify. Once you have the two of them going, your numbers should make more sense.
BRRRR is going to be challenging in the current market without more established of an asset base.
But if you can Hack your way to the two duplexes, you can save up for a downpayment on a SFH at that point and move there, while having two duplexes. At that points, you should have options and a track record.
I just purchased my 1st duplex in January. Renovated and tenants area now paying 100% off the mortgage.
What is the best way to acquire a 2nd rental property? I've already used my FHA so I'm thinking conventional 20% down?
Which route do I go to fund it? I’m starting to work more hours at my job to save 40k-50k. It’s not going to be easy but if there’s other routes to achieve capital too that’s easier I’m willing to hear it.
Hi I thought there required a couple years between FHA loans at least?
@Khari F. FHA and all lenders require you to live in a property for one year to meet the criteria of owner occupied. After that if you wanted to rent out your unit you could do that. You cannot have two FHA mortgages at the same time. If you wanted to get another FHA loan, you could however you would have to refinance the first FHA loan. I think you might be referring to a status of first time homebuyer. FHA does not require that you be a first time homeowner.
@Kerry Pangan use equity on first to buy second. BRRR. You have increased your income. If you are worried about another loan look for an investor looking to sell at you local REI meetings. If they are willing to do a land contract on a property you can again increase your debt to income ratio without it showing up on your credit report until ready to finance. The great thing about real estate is there are many ways to do a deal. I invest in many things, and nothing else has this flexibility.
Many people have used the approach where after 12 months, they refinance the first property, go buy the next one with a new FHA loan and rent out the unit they were previously living in for only 3.5% down instead of the 15-20%. Haven't done it personally, but that was the approach I was looking at to get started. You could also look into a vacation home loan which only requires 10% down, as long as it isn't too close by. I have to keep reminding myself as well that those first few properties are always going to be the hardest. Buying rentals is a long-term play. No get-rich-quick scheme here!
Save up a downpayment. 5%, whatever.
Leave the FHA alone because of rates. I don't think you have to continue to occupy it, as long as it was true when you got it.
Acquire a second Duplex with a Conventional loan (can do 5% down), move into the Duplex. Rent out the unit you vacate. Now you have 3 Tenants + you. You should be able to count on a decent percentage of the rent as your income to qualify. Once you have the two of them going, your numbers should make more sense.
BRRRR is going to be challenging in the current market without more established of an asset base.
But if you can Hack your way to the two duplexes, you can save up for a downpayment on a SFH at that point and move there, while having two duplexes. At that points, you should have options and a track record.
Now that’s a plan I had in mind. I haven’t shopped or looked around but a 5% conventional reachable?
2 thoughts here. 1. Conventional doesn’t have to be 20%, it can be 5% or even less. 2. Does the second property have to be a house hack?
I ask because brrrr will scale much faster and 20% down will keep your money tied up. Food for thought. Best wishes to your success
Many people have used the approach where after 12 months, they refinance the first property, go buy the next one with a new FHA loan and rent out the unit they were previously living in for only 3.5% down instead of the 15-20%. Haven't done it personally, but that was the approach I was looking at to get started. You could also look into a vacation home loan which only requires 10% down, as long as it isn't too close by. I have to keep reminding myself as well that those first few properties are always going to be the hardest. Buying rentals is a long-term play. No get-rich-quick scheme here!
You honestly don't have to take my word for it since I haven't done it personally, but my lender actually brought it up to me to buy a vacation home for 10% with the intention of being there a couple of weeks out of the year and renting it out the rest of the time, my parents did it with their vacation home in Tahoe, Tony Robinson interviewed his lender who talked about it on his own podcast, and Tony Robins talked about it in his book "Money, Master the Game" with the Island he owns. He goes there a couple of weeks out of the year and he uses the resort he built on it to pay for it. Also, the FHA loan helped a low-income family of 5 was interviewed on a different podcast become investors. They are currently in a triplex as their 2nd property using FHA and are almost financially free. No doubt that there are wrong ways to do this stuff, but educate yourself and don't stop at your first no. Good luck!
Buy cash with hard money or private money then refinance with a DSCR lender or local bank.
I bought my first 8 single families with 15% down bank financing and am having trouble being able to pull cash out and buy more. However, if I would have bought them cash, I would be able to do a cash out refinance no problem.
Wish I would've known this method before working the hundreds of hours to save up cash for the down payments for the houses. Hope this helps.
2 thoughts here. 1. Conventional doesn’t have to be 20%, it can be 5% or even less. 2. Does the second property have to be a house hack?
I ask because brrrr will scale much faster and 20% down will keep your money tied up. Food for thought. Best wishes to your success
I bought a vacation home this fall. My wife is planning to get one this Spring. We're going to stay in each one for a bit this summer, see what improvements are needed, and away we go. We'll move between them during the summer and get a feel for both.
Then we'll have two STRs plus vacation homes.
Many people have used the approach where after 12 months, they refinance the first property, go buy the next one with a new FHA loan and rent out the unit they were previously living in for only 3.5% down instead of the 15-20%. Haven't done it personally, but that was the approach I was looking at to get started. You could also look into a vacation home loan which only requires 10% down, as long as it isn't too close by. I have to keep reminding myself as well that those first few properties are always going to be the hardest. Buying rentals is a long-term play. No get-rich-quick scheme here!
You honestly don't have to take my word for it since I haven't done it personally, but my lender actually brought it up to me to buy a vacation home for 10% with the intention of being there a couple of weeks out of the year and renting it out the rest of the time, my parents did it with their vacation home in Tahoe, Tony Robinson interviewed his lender who talked about it on his own podcast, and Tony Robins talked about it in his book "Money, Master the Game" with the Island he owns. He goes there a couple of weeks out of the year and he uses the resort he built on it to pay for it. Also, the FHA loan helped a low-income family of 5 was interviewed on a different podcast become investors. They are currently in a triplex as their 2nd property using FHA and are almost financially free. No doubt that there are wrong ways to do this stuff, but educate yourself and don't stop at your first no.
I think you went off piste. The original comment asked about buying the next rental property. What you are talking about is a vacation property. Not the same thing. Vacation home cannot have a full time renter in it as they require the owner to occupy it for at least a couple weeks a year. When you have a full time tenant that’s called an investment property. Educate yourself. Have a nice day
Hi @Kerry Pangan!
Congrats on the first house hack deal!
If you're investing alone, 15% down conventional is probably the most standard way to get the next deal. I agree with some of the advice you've received already that you should get your property reserves to a healthy spot and then save for the next purchase.
One strategy that you could consider is using a significant other or friends FHA loan to get the next deal and live in it together. You don't necessarily get the benefits of owning this deal (unless your strategically switching off buying deals with your sig other) but you do get to keep your housing costs lower while fully renting out your first deal. This will allow you to save up your reserves and next deal funds much quicker.
Hope this twist helps. Good luck and here for any questions along the way!