Own primary residence, looking to buy first rental

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Own primary residence, looking to buy first rental

Jordan Parr
Real Estate Agent · Thibodaux, LA · Member since 2020 · 4 posts · 5 votes

*asking for a friend*

I've recently become a licensed agent and I am working with a long term friend to help begin his path into real estate investing with his first rental. Now that I have my license we have began searching for a deal. He currently owns his primary residence which he took out a 115k loan on 2 years ago. He owes 70k left on the loan and has 50k in cash reserves to invest. House has recently been appraised for 130k.  Our question is... what's our best option to fund the deal? Between the cash and the equity in his primary residence which would be our best route? 

Ideally he wants to leverage the equity in his primary, but he does not want to end up with a higher note.

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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
5y

Is he willing to live in a smaller unit? If he's owned his primary residence for two years, he could qualify to purchase another home using an FHA loan. He could buy up to four units. He lives in one, rents the other three out, and rents out his singe-family home. That gives him four rentals. Two years later, he can rinse and repeat.

Even if he wants a larger space, he could find a larger, nicer duplex that would give him a place to live and one more rental.

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    5y

    Is he willing to live in a smaller unit? If he's owned his primary residence for two years, he could qualify to purchase another home using an FHA loan. He could buy up to four units. He lives in one, rents the other three out, and rents out his singe-family home. That gives him four rentals. Two years later, he can rinse and repeat.

    Even if he wants a larger space, he could find a larger, nicer duplex that would give him a place to live and one more rental.

    The DIY Landlord Book4.7248 Reviews
    WebsiteView Page
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  • Andrew FreedBusiness Member
    Investor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
    5y

    @Jordan Parr - Nathan makes a lot of solid points. Personally, I've utilized a HELOC to purchase my house hacks / investment properties. They are a fantastic vehicle since the minimum payment tends to be interest only for the first 10 years and P + I the next 15 years after that. Also, since you are using the property as collateral, the rate tends to be tied to the current federal rate. For instance, my current rate on my HELOC is .25% the federal discount rate. This is by far one of the best investment vehicles excluding the 30 year fixed conventional loan.

    In addition, he could also do a cash out refinance however since you advised he does not want a higher note, that might not be the best route. 

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  • Joe Norman
    Property Manager · Baltimore, MD · Member since 2014 · 1k+ posts · 1k+ votes
    5y

    He's not going to be able to leverage his equity without an additional note (HELOC) or a higher note (cash out refinance). Doesn't sound like he needs to though and I thin you guys are overthinking this - his $50k in cash should be enough to get 20% down conventional loan on a cashflow rental in most markets.

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