Semi-newbie second property help!

10 Replies

Ashley here in palm beach county Florida 👋🏼 I bought my first property in 2012 for 70k. Just had it appraised at 210k. I want to use the equity for a down payment on my first investment property as I don’t have a lot of cash saved up. Problem is the numbers don’t work in my favor with almost a 100% finance. Cash flow would be minimum on a small condo with an HOA. Should I buy an investment property with little cash flow (talking 50-100 monthly) Or do I buy a property to move into and rent out my current property? This would equal a lower interest rate and a $600 monthly cash flow. Negative would be moving into something that would be a step down from my current home/location. Any thoughts appreciated!

@Ashley Lynn If I were in your situation, I would max out on a HELOC on your current home if you have a conventional loan on it, or refinance out if you have an FHA loan on it.

Scenario 1 (HELOC on conventional): You will be able to get more on it as it is your primary residence. Being that you wold get 75% LTV on the HELOC, it would be 210k times 75% minus what you owe. Next, I would take the money from the HELOC, and purchase a fourplex as a primary. This will allow you to use an FHA, live in one unit, and collect rent from the other three. Using the income from the other three will also allow you to qualify to a better quality of property. Being that you are only putting 3.5% down, you may have enough left over from your HELOC for another property or some capital improvements on either property

Scenario 2 (refinance on current FHA): Refinancing the loan will allow you to get a 30 year fixed rate on the property you are in and then have the ability to get an FHA on another property. You will get the same amount as the HELOC or perhaps even 5% more cash back, as some banks may give you 80% LTV. I would also get the fourplex and live in one unit.

Either scenario would set you up for success. This way, you would maximize your unit count in the residential space, while taking advantage of the government programs that gives you incentives to buy residential. 

Also... we have a coffee meetup group that meets every month in Delray Beach. Next meetup is this Saturday! Send me a msg if you'd like more details.

Good luck!

@ Jon Huber thank you for the sound advice! I'd be doing a HELOC as I already refinanced to get out of my PMI not too long ago. Should have taken out the cash then but I wasn't thinking since I wasn't actively looking for a second property at the time.

A triplex would be ideal but i can't find any in my price range in this market (250,000 or less). Unless I'm not looking in the right places? I've mostly been checking out the MLS.

I’d love to attend the meet up! Let me know the details

@Brian Garrett thanks for the welcome! I see you’re in my target area (palm beach county) I’m sure I’ll have questions along the way. In the meantime, any advice you can offer for this area?

@Ashley Lynn   Lots of advice out here to be had just be careful what you take in from others.  your question is difficult to answer.  Others have already have but with solutions that would best fit them.  You stated to buy another primary would be a step down, seems that is a major concern for you and it should.  Do you have family that would be moving with you?  Little ones to be concerned for the school district?  By yourself and neighborhood safety a concern?  these are all factors that come into play and did with me when I cashed out last year on my 1 rental property.

I tried to find a 2-4 unit and house hack but when it came down to it was too much down $$ to buy here in south florida and all those properties, at least for me, weren't in areas I was willing to put my wife and two kids in. So, there went the idea of house hacking, should have done it in my earlier years.  

Yes, financially many times it makes sense to buy and move into a new primary as rates and terms are better.  Sometimes it's best to stay put, don't incur moving expenditures and hassles and buy rental/flips.  That's what I ended up doing and went out of state to do it.  Took a cash out refi for 45k mid year 2017, bought 2 rentals and just went under contract last week for a 3rd.  Not saying this is best for you but another option to think about.  

What others have put are all good suggestions you just need to figure out what is best for your situation.  Good luck and we are all here to help out.

@Jon Huber I've been trying for so long to go to one of those meet ups and something always comes up with kids, work, home, etc.  No more excuses I have to make it out there this weekend can you send me an invite to it I don't remember seeing the one for this month.  Thank you Jon.