What is my next move?

[Austin Dixon]

In June 2013, I purchased a 2 bd/2 bath condo (put 20% down) and rented a room out to a friend. At the end of January, my friend is moving out. I plan on continuing to live in the same location without replacing the roommate. While the income was nice, I can not imagine replacing with another tenant. The past 18 months, I have been saving in order to purchase my first investment property. I believe by mid 2015, I will have a large enough chunk of money to put down 20% on another property (75-125k purchase price). How will having a personal mortgage impact my ability to secure another mortgage and how much cushion in savings is recommended before purchasing a rental property? Any advice on taking the next step would be greatily appreciated.

[Bret N.]

The personal mortgage won't really effect too much if you have good credit and continuous employment.  Being that you are purchasing a property that is already generating income(I assume) that would offset any debt-to-income ratio the two mortgages would have on your credit.

What I would do:

1) Setup an LLC If you have not already

2) Devise a business plan that you can present to banks or other lenders

3) Go to a small bank or credit union and develop a relationship which can help you in the future. Perhaps they can refinance your  mortgage on your condo which gives them more incentive(if it makes sense with fees of course)

4) Check around and look for deals where the seller wants to do a Seller Carry Back for a percentage of your amount down.  Note that most Realtor nor their client will know what that is but once you educate them, most likely they will entertain the option. This allows you to use your savings to potentially get more deals.  NOTE: Be sure to run this past your lender first if they will allow the seller to carry a second.  

5) Buy smart :-)

Good luck!