Should I buy my second rental now, or wait?

Question

Hi I am Zach and new to real estate and Bigger Pockets. I am 26, married 3 months ago and bought my first investment property 5 months ago. The first property is going good, I did some value add by painting the outside and updating the bathroom. I have a good tenant in there and am cash flowing ~$150 a month. Me and my wife have a goal of her quitting her job within the next 5-7 years to stay home and take care of future kids. We think real estate is the way to do that and I keep working my full time job as a Lineman. I bought our personal residence in may of 2021 and it has appreciated a little over $100,000 since then, and has a 2.9% interest rate. We do have a little bit of personal debt totaling $25,000, with only ~$5,000 of it being high interest. We plan on having that 5k paid off by the end of this month tho. We are trying to decide if we should open a line of credit and buy our second rental, which we found a prospect. A house listed for $60,000, that we feel could go for a little lower. It also has a tenant in it that wants to stay and all the CapEx such as roof and hvac and water heater is all less than 5 years old. My question is, should we get all student loans and personal debt paid off first or buy this second property. Thankyou for any help.

Caleb Brown · Answer

I would payoff the 25K and have that past you. It is 100% personal but if you are going to leverage for Real Estate I would not want to add personal debt on top of that. From there a HELOC on your primary is not a bad idea. If you do I would do a flip or BRRR. HELOC is a short term product so you don't want it dragging out. There are also hard money loans which can be another product. Before you add a 2nd property make sure you have a nest egg saved up for repairs/mechanicals on your first rental property. I would not go for another until you have that, a large expense can pop up and the last thing you want to do is borrow for that.

Ghassan Jabali · Answer

Hello Zachary,

I hope you're doing great. Generally, that is a question many investors struggle with for either saving some money in case of emergency or life changes, focus on paying off existing debt, or trying to be more ambitious and acquiring new property. There is no true way to fully predict the future on how the market may turn or housing prices may fluctuate to determine when exactly is the best time to buy, especially with market corrections, recessions, or other geopolitical events that can impact prices. With that being said, it can be good to acquire property now if you are able to vs later, and if you feel you are financially stable. One of the reasons why it could be good is the time value of money that a dollar today is worth more in investing power than a dollar tomorrow. This is especially true with inflation and an upward trend of properties going higher and higher in property value, they can still help generate some rental value or be a long term asset to have as you pay it off, or later on use the equity to do the BRRR method.

However, it is also important to understand that paying off existing debts is important. Student loans generate a lot of interest and it can be good to have a fund in case of any emergency. These are all unfortunately competing interests that you may need to weigh the pros and cons for as you go forward, including the costs to set up any asset protection or estate planning for your businesses and personal assets.Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

Jaycee Greene · Answer

Hey @Zachary Adcock, welcome to the BP Forum and the grind. Sounds like you're off to a solid start (and congrats on the wedding and the first deal - that's a heck of a Q1).

Quick thoughts:

• $150/mo cash flow is a win, especially on your first deal. Stack a few of those and the freedom plan starts looking real.
• $2.9% on your primary? That's basically financial gold. Don't touch that unless the house catches fire - and even then, think twice.
• $5K high-interest debt: Smart to knock that out first.
• Second property prospect sounds promising, but be cautious about taking on too much leverage too fast - especially with personal debt still lingering. If the tenant bounces or expenses pop up, you don't want to be juggling multiple payments without the income.

$150/mo cash flow is a win, especially on your first deal. Stack a few of those and the freedom plan starts looking real.

$2.9% on your primary? That's basically financial gold. Don't touch that unless the house catches fire - and even then, think twice.

$5K high-interest debt: Smart to knock that out first.

Second property prospect sounds promising, but be cautious about taking on too much leverage too fast - especially with personal debt still lingering. If the tenant bounces or expenses pop up, you don't want to be juggling multiple payments without the income.

If the deal truly cash flows after all-in costs, go ahead and run your numbers tight. Just make sure you're not trading short-term stress for long-term goals. A little patience now might give your wife that early retirement plan with fewer gray hairs later.

Keep grinding!