I have two investment properties bring in a total of 1400 per month. Both of these properties are mortgage free. I would like to buy a third property. Should I buy it with the equity of the second investment or take out a mortgage? Remember, I am a newbie. .
What's the market price of the two properties? Would you cash flow still if you refinanced 75% of that value?
I think you are asking if you should pull cash out of the existing rentals or get a new mortgage for the new property. To me, it makes very little difference. I would do whichever my lender was comfortable with.
I invest in low income houses. The first property is estimated at a conservative value of $41000, the Second is $30000. The 3rd property I could make an offer for 26000, it can give me an income for $750.00. After repairs on this house could be at $45000. Yes, I would still cash flow. Also, I have a job. If i refinance or take a mortgage, my payments wouldn't be more 200 per month. I can pay that with my salary...what do you think: s mortgage or refinance. Do you think refinancing would reduce the value of my small profile..
I'm still starting out, but from a closing costs perspective, fees will be a large percentage in relation to the small amount financed. Banks don't normally like small mortgages, but perhaps you refinance the $41k property to get the cash needed to buy the $26k property and I imagine some repair costs you've already identified. Your only out of pocket might be closing costs. Or you could see about no cost and just wrap it into the rate.
The loan amounts are too small. Most banks will not lend below $50k. Your best bet is to google and call up local and community banks and ask if they would do a HELOC on investment properties. A HELOC is typically free of fees and closing costs.
Based on the numbers you provided, debt service would likely not be an issue. You just need to find a lender that is willing to lend. Start there and see what obstacles you run into and let us know.
Refinancing or obtaining loans on your properties would not reduce the value of your portfolio because the cash will go right back into acquiring more properties. If done right, it should increase the value of your portfolio.
For example: $40k + $30k = $70k value on both properties (free & clear). If you take out a $35k loan to buy a 3rd property for $35k, your net worth is still $70k. If you take out $35k in loan and buy a property that's worth $70k because you got a good deal, your net worth is now $105k.
Say you got a great deal for your 3rd property. After you have seasoned it for 6 or 12 months, you can borrow 75% of its value which is $52.5k. Now you have even more money to reinvest into your 4th property while your tenant is paying off your mortgage. Rinse and repeat. That's how you build wealth. The caveat is finding deals with below 75% ARV consistently.
Good luck finding a lender.
Hey Minh lee others, Thanks a great lot for the input. I think i will go with the HELOC. It will be a good Idea. I will like to show you guys the work i did on the second property, all i did myself, like the kitchen cupboard, doors windows, etc, to bring it up to standard but somehow i cant get the images upload. I like to show you the 3rd investment property that i have my eyes on
Once you found a great deal and short on funds, consider taking on a partner. 50% of something is better than 100% of nothing. Use the search function above to locate other investors in your area. Use meetup.com or Google to find local Real Estate Investment Groups/Associations in your area. Go there and rub elbow with other investors. You'd never know who you would be your partner(s) and private lender(s).
I'm speaking from personal experience. I have done over $4.5M worth of real estate with strangers, who I met through the internet. Some are now my best friends, and we're still looking to do more deals.
Don't be shy. Go out there and rub elbow with other investors. At the end of the day, your results show your dedication and creativity in this business. I wish you the best.
@Zaheer Jabbar I would be refinancing faster than I could write this. The numbers don't lie. Your initial cash flow goes down, but you are gaining another property. Then refinance that property, and keep doing this until you can't do it anymore. Those paid off rentals are your private banks. Use them.
@Zaheer Jabbar Also, it's always better to refi than to start out with a mortgage. There are a number of reasons but this is one of the biggest:
* If you get a mortgages, you will need to come up with cash for a down payment.
* If you refi, you don't need it (if the refi amount falls within the ARV% for a loan)
@Zaheer Jabbar If I were you, I would do cash out refinances on the first two properties. With that cash I would use it as others have said to purchase several more investment properties - 10 if you could and cash flow would be even greater! Interest rates are at an all time low.
Jerry Padilla, Lender in NY (#NMLS 1084877)
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Join the Largest Real Estate Investing Community
Basic membership is free, forever.