How to go from deal #1 to deal #2

[Colin Leach]

I finally took the plunge and purchased a buy and hold rental property in Oct 2017. Rehab went a little over budget. Rehab took a little longer than expected. Took a little longer to find a tenant because I believe I slightly overpaid so I wanted slightly higher rent than the area calls for, cash flow ($100) is lower than I expected BUT... I did get it all done  and I have a tenant which leads me to my question.

How do I get money for my second deal? I used up most of my cash reserve for the down payment. I have some money in my 401k and I can get a loan against it for a down payment on my next property. Maybe I can find some private money, but my question is how do I pay for the private money or pay my loan back? The numbers below are an example. It cash flows $180 after everything, but if I did 401k loan, it would cost me $340 a month to pay back that loan ($20,500 over 5 years at 2.875%). So I have loan payment for $340 - $180 leaves me with paying $160 a month for 5 years.  Do I have to find a deal good enough that it cash flows above what I would need to pay for my loan (in this case it would need to cash flow $340)?  And the answer may be to save up the down payment while I sit on this first property. Just wanted to get others opinions.

Example numbers:

Purchase price: 70,000

Down payment: 14,000

Estimated repairs: 1,500 (figuring close to rent ready)

Closing costs: 5,000

Rent: 1,000

P&I plus hold backs: 820 

Cash flow: $180 (10% COC)

So all in for me is : $20,500 (down payment, closing costs, repairs) which I don't have right now.

[Cameron Whitehead]

Hey Colin, 

Here is an idea...just an idea, which I am thinking about doing for my third deal. Buy a duplex using a FHA 3.5% down. With the FHA you will have to live in it for at least a year I believe. Find another place after the year is up and when you do you will have 3 units instead of 2 and it will be less money down. Best of luck!