What to do after first rental purchase?

Question

I just purchased my first duplex a few months ago.  I also have a single family I am renting out.  The single family has an equity line on it.  The duplex is FHA owner occupied.  I was wondering how to get a four-plex.  Should I pay off the mortgage and equity line as fast as I can and then refinance the mortgage, or should I pool up a large amount of money for a down-payment.  If I save up my money I could purchase a four-plex with 20% down and then I would not have to refinance the duplex mortgage.  I don't know which is better and which would give me a loan faster.  Do you guys have any advice for me?  I want to make sure I don't waste my time/money and that I get into more investments as soon as possible.  The duplex and single family are my FIRST rental income so I believe I would need at least one year steady income for the financier to see that I am able to make income this way (track record).

John Leavelle · Answer

Howdy @Brittany Fife

I totally agree with @Kevin Siedlecki.  If your long term strategy is Buy and Hold Cash Flow income and you have a goal to reach you should still be in acquisition mode.  Once you reach or start getting close to your goal of 30, 60, 100 units, or whatever it is, then you can start paying down mortgage debt at an accelerated rate.

Of course this all depends on your debt tolerance.

Happy investing.  :)

Kevin Siedlecki · Answer

@Brittany Fife - Save your money! If you put it towards the loan, all you are doing is trapping it in the equity, requiring you to do work and spend money to take it back out. If you save it in a cash account, you can just use it immediately for your down payment. At today's interest rates, paying extra principal for a year or so is just not going to make enough of a difference to justify trapping your money in equity, especially in a market that many expect to correct soon. If that happens, and your property value goes down, you won't be able to take any or all of that cash out. If you have your money in cash, then the short-term fluctuations in the market don't matter at all. In fact, your cash has more purchasing power, and your other property is still making money, so you're golden.