New Investor - How do I expand out quickly?

Question

Hello All,

I'm new to BP, and I look forward to meeting many of you! I could use some help to figure out my next steps in this journey to be as successful as you all.

My journey started last year, April 2021 when I acquired a legal 2 flat as my first property. I fully renovated it, converted to 4 units (2 in basement) and currently renting out and managing myself. Investment is currently cash flowing nicely.  Half a year after that, I sold a primary home my parents had and bought another primary home which I'm currently living in with them. Properties numbers look as followed:

INVESTMENT (Aprl 2021)

Loan type: FHA - 3.5% down

Interest Rate: 3.75%

Purchase price $400,000

Renovation Cost: 60K

Estimate equity: 100-150k

Cash flow: $1500-2000/month

PRIMARY (Oct 2021) (plan to leave parents here)

Cost: $300,000

Loan type: conventional %25 down

Interest Rate: ~6.75%

Renovation Cost: 50k

Estimate equity: 160-200K.

I currently have 20K in savings and cracking down on my spending to be able to save 30-40K a year. Im blessed to have a stable six-figure income at age 26 and I plan to take advantage of it to scale up as quickly as I can. If you were in my situation, how would you build your portfolio from here? SFHs, multi-family, big commercial real estate? Thank you all so much in advance!

Manny Oviedo · Answer

I left out the part that my dad has been helping out with some of the finances so I use him as our "savings" for anything that comes up unexpectedly.  Thanks for the input!

Ben Einspahr · Answer

@Manny Oviedo Excellent work as such a young age man! Agree with @Paul De Luca.  I would keep it simple and buy a primary, rent out part of it to offset your living expenses. 12 months after that move out. Now you have another rental for 5% down. Amazing ROI.

Here is a rule of thumb I use for savings/rainy day fund:

-6 months reserves for each rental

-6 months reserves for personal living expenses.

Chris Davidson · Answer

@Manny Oviedo do what makes you happy, and you enjoy. Just because you start in SFH, doesn't mean you can't move to commercial or to multi. Maintaining a high savings rate while investing and putting in the work now will pay off well down the road. If I was in your shoes I would just save up and get another property and keep rolling. As time goes on look at selling using the 2 of 5 rule to avoid taxes and take those funds and roll straight into an investment or another house hack.

Keep up the good work!

Paul De Luca · Answer

@Manny Oviedo

Nice work and welcome to the forums!

With $20k in savings, buying another primary residence (likely a SFH) appears to me as your best option. You've already used FHA and Home Possible (5% down) wouldn't work for you on 2-4 unit properties. You could do 10% down on another 2-4 unit property but then it would likely wipe out most or all of your reserves even under $200k, which wouldn't get you much. Because of that I think using a 3-5% down loan on a SFH would be your best bet. Maybe you could even find a SFH with an in-law suite which you could either live in or rent out separately. Or you could do a cash out refinance to free up some cash.

Ben Einspahr · Answer

when it comes to financing, if this will be your primary residence/ house hack, the most common loans that get deals under contract are boring 30 year fix conventional.  No need to get fancy or creative

Manny Oviedo · Answer

Hello Ben, thanks for your advice! I def agree on the savings. I drained them in the last two properties and moving forward I look forward to putting less down and convert them to investment properties after a year. The problem I'm running into is with my lender. Def have to expand more and get more knowledgeable with the right type of loans.

Manny Oviedo · Answer

Very good feedback. I will def start off with another SFH while its time to pull off money from the other two. Much appreciated.

New Investor - How do I expand out quickly?

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