Need advice for buying a second investment property

3 Replies

Hello BP Community,

I need some advice for my second investment property.  I have been owning a property now for five years, and it is my primary residence.  I am interested in another property that is for $450k in a great neighborhood, and it is below market value.  I really want to buy this property and wanted to see if i can get your advice on how to go about it.  I have a decent idea about approaching this, but I would love to hear some creative financing ideas from  you all on how to buy this property.  Here is the scenario:

- I have one more person who is interested in putting some money down towards this house.  However, we don't want to put 20% down unless it is absolutely necessary. 

- A couple of months ago, I applied for Home Equity Line of Credit, so i am thinking about using money from my HELOC towards the downpayment for the second property.

- My plan is to buy this property and rent it out immediately.

My question is:

- Still owning my first property, will I still be qualified for another loan?

- I am assuming investment loans will have higher interest rate, is this true? and any idea as to what percent interest am i looking at?

- How much money will I have to put down?

I would greatly appreciate any advice or comments you guys can provide.  Thank you in advance for your help!

Muju

Even "below market" $450k is a significant amount for a single family (this is single family, right?), especially if you expect to put less than 20% down. Between mortgage, taxes, insurance, vacancy, and maintenance, it would seem difficult to achieve positive cash flow. If you expect excellent appreciation, perhaps it might be a reasonable decision. I strongly advise that you build out a complete and sound financial model before doing any deal.

To answer your specific questions:

It is impossible to say based on only the provided information whether you would qualify. You certainly might qualify – nothing you have stated would specifically exclude you. You are "allowed" at least 4 (maybe more) mortgages in your own name, though you would have to qualify for each; they aren't just an entitlement.

Investment loans almost always have a higher interest rate. The rate depends on the risk profile and the specific market. I was being quoted a rate of 4.5% on a duplex recently in northern Utah.

Conventional loans for investment properties usually require no less than 20% down - sometimes even up to 30% might be required depending on the property. The 4.5% rate that I cited above was based on a 30% down payment. We couldn't secure reasonable financing for less than that down payment amount.

I hope this helps!

Lance

Even "below market" $450k is a significant amount for a single family (this is single family, right?), especially if you expect to put less than 20% down. Between mortgage, taxes, insurance, vacancy, and maintenance, it would seem difficult to achieve positive cash flow. If you expect excellent appreciation, perhaps it might be a reasonable decision. I strongly advise that you build out a complete and sound financial model before doing any deal.

To answer your specific questions:

It is impossible to say based on only the provided information whether you would qualify. You certainly might qualify – nothing you have stated would specifically exclude you. You are "allowed" at least 4 (maybe more) mortgages in your own name, though you would have to qualify for each; they aren't just an entitlement.

Investment loans almost always have a higher interest rate. The rate depends on the risk profile and the specific market. I was being quoted a rate of 4.5% on a duplex recently in northern Utah.

Conventional loans for investment properties usually require no less than 20% down - sometimes even up to 30% might be required depending on the property. The 4.5% rate that I cited above was based on a 30% down payment. We couldn't secure reasonable financing for less than that down payment amount.

I hope this helps!

Lance

Thanks @Lance Johnson! The property I am looking at is in the Washington DC area, and it is a 2 BR/1BA condo. I know this building very well and the market very well. I pulled out the comps for this area, and it is in the $520k range. The rental market is really awesome for this area, and I pulled out the rentals for 2 BR/1 BA condos, and they are in the $3100-$3500 range. Depending on how much money I put down (provided the lender agrees for less than 20%), I calculated my monthly mortgage, condo fee, taxes, PMI and insurance to be somewhere in the $3100 range, which I could be breaking even. However, if i put 20% down, then I will be making some money.

I agree that the $450k is a lot of money for a condo, but knowing this area, it sounds like a great deal for a 2 BR/1 BA condo where usually most of the 2 BRs are going for more than $500k.

As for me getting a mortgage, I have a great credit score, and I am thinking about going in with another person who doesn't have any mortgage under their name, and their credit score is excellent too.  

What if we buy this property as a primary residence under my partner's name and then rent it out?  Is there a clause in the contract the prevents you from renting your primary residence for certain number of years?  

We are planning on renting this property out for a couple of years, and then probably sell it if the value appreciates.  There is a lot of construction going around this building, and it is centrally located which a few metro stops around.  The building has a lot of amenities including rooftop swimming pool, gym, club room and a parking garage.

Thanks!

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