How do you buy your second house?

Question

So I've purchased my house a few years ago, and have had my friends living with me and paying rent while I fix the house up. I've gotten almost completely to where I wanted it, but now I'm ready to start looking to make a move to my first real investment. I want to be able to keep the house and rent it out while I buy another house to live in and fix up, and continue over and over. On my normal work income, how do I get approved for a new loan, find renters for my first house while I'm purchasing my second, and make that transition to then being a first time official landlord?

Dillon Goral · Answer

@Bryan Noth

Thanks! I'm trying to build equity and learn from all of you guys that have experience and put it into play as much as possible. The one thing I guess that may cause a problem is not having official written leases right now. My main reason simply being I don't know how to go about drafting any of that info, and making the transition to becoming more "official" with all of this. Do you know of any resources I can read that would give me a sort of How-to on how to make that transition whether it's finding a lawyer or drafting leases myself or whatever steps are best to ensure the best chance of success? Thanks for your response!

Dillon Goral · Answer

@Bryan Noth

Perfect, I just joined so I wasn't aware of those benefits.. Thanks!

Bryan Noth · Answer

@Dillon Goral Anytime a legal question arises the obligatory advice is consult an attorney, which I am not.

However, if you are trying to do it yourself you are on the right website my friend.

First, check out The Book on Managing Rental Properties by Heather Turner and Brandon Turner.  This was a terrific read for me when starting out being a landlord.

https://www.biggerpockets.com/...

Second, @BiggerPockets .com has landlord forms available for every state on the website.  You may be able to purchase them individually but they also come included in the pro-membership which could very well cost you less than the price of talking to a lawyer to draft up those leases!

Bryan Noth · Answer

Hey @Dillon Goral.

First, give yourself some well earned credit.  If you have friends (tenants) paying rent to live with you then you are employing the house-hacking strategy and already have experience being a landlord.  Cue applause.  From your post I will assume that your friends will be moving out if you purchase another house.

Qualifying for the next purchase is often easier if you can show stable mortgage payments and if you have actual leases drawn up with your tenants.  This provides documented  evidence that could also offset the debt service ratio used to qualify you for another mortgage.  If you do not have written leases then it could complicate your loan qualification.  You may have to place tenants in the home with legally complying leases, either renting by the room or the entire residence.

One other thought to consider is house hacking your next purchase with a duplex.  You can again offset loan expenses with one rented side and live on the other, possibly renting to friends again.

No matter what you do my first step would be to find a lender and ask them what some options are, they have the ultimate say and experience making sure people qualify for loans.