How should I do this?

4 Replies

I started as a real estate agent in 2012. Took on a full-time job and have decided to do some real estate investing on the side. I purchased my first investment property in 2014 all cash for $200k. I am seeking to buy a second investment property in the same complex since the area is great and school district is fantastic. I am not sure how to proceed.

Since the first property is an investment property, my loan officer instructed me to buy the 2nd property as my first time residence with 5% down. All in with fees, I am looking under $20k. So my mortgage payment on that would be a wash from the rent that I would be getting.

So to recap, I haven’t touched the first property that is fully paid for, and I have financed the second property and the rent payment is a wash.

My other option is to do a cash out re-fi on my first home and pull out the equity of the home and use that money to buy a second property all cash. Then the rental income on the first property would be a wash for the mortgage on the first property and I would own the second property free and clear.

I am not sure what way to go because I want to maximize the tax advantages, etc and leverage the money correctly.

Any help would be greatly appreciated. 

@Steven Lewis I would be very careful about putting in a mortgage application stating that you will be an owner occupant if you plan on renting it out.  Chances are you will get away with it....but do you really want to be that one person who gets caught for mortgage fraud? I say just abide by the laws we have in place.  Integrity goes a long way in this business. Unless I am misunderstanding you and you plan to occupy the 2nd unit?

@Russell Brazil is right. The 5% down first time stuff is owner-occupancy from what I know. If you don't plan to live there I recommend not using that strategy.

Why not cash-out refinance on the first to buy the second?

@Steven Lewis if you want to maximize tax advantages and use leverage (which are two of the great things about real estate) I would suggest you speak with your accountant, and if she/he doesn't know about all the benefits of real estate in order to get you to save all the income tax and capital gains I would find a firm that does.

Hi, thank you all for your input. 

I would be owning and living in the second unit with the long term goal of renting it out. 

Wanted to know the best way to proceed on buying the property to maximize my leverage. 

You hear all these stories about taking a HELOC or re-fi and leveraging the money for the next properties down payment. I just want to make sure I'm buying that properties correctly to leverage my money the right way.

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