Trying to scale up from single family to multifamily

Multi-Family and Apartment Investing
5yFollow

Trying to scale up from single family to multifamily

Andre Houston
Rental Property Investor · Renton, WA · Member since 2021 · 45 posts · 11 votes

My name is Andre Houston I purchased 2 rental properties I never lived in them. I was finally able to purchase a house for my family so I have 3 total. I'm trying to figure out how to scale up to multifamily homes. I have about over 100,000 in equity in each home. My question is how do I use some of my equity to help purchase a multifamily? My debt to income is kind of high because its about 1 million in loans for all 3 homes. Should I use a private lender or a hardmoney lender kind of stuck thank u in advance for your help.

6Reply
42 views

Most Popular Reply

Wale LawalBusiness Member
Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
5y

@Andre Houston

Cash-out Re-Fi on your existing rentals and leverage the bank money. 

Make sure to know the market you are investing in and know your numbers.

Goodluck man!

[email protected]832-776-9582Podcast Guest on Show #469
NETWORTH BUILDERS5236 Reviews
WebsiteView Page
3Reply
See this reply in the discussion

21 Replies

Jump to latestLatest
  • James Horner
    Rental Property Investor · Flagstaff Arizona · Member since 2020 · 14 posts · 17 votes
    5y

    Hey Andre, 

    Are your current rentals covering their expenses and paying themselves off? If so that's great, and if not maybe it would be worth seeing if you can find a duplex to purchase, sell one of the single family homes and 1031 exchange the profits into the purchase of your duplex which saves you from paying massive taxes on the sale of the property and puts it right into the multi unit that you are buying. It all depends on what your goals are but i have found whenever i have used hard money or privet money on smaller deals it tends to quickly eat up any of the profit or cash flow that i was hoping to have in the end. But that being said if you could find a partner to go in on a deal with you that may be one way to get started on buying multi family houses. If you find the deal people will invest with you. 

    2Reply
  • Andre Houston
    OP
    Rental Property Investor · Renton, WA · Member since 2021 · 45 posts · 11 votes
    5y

    @James Horner Thank u so much for your feedback I really appreciate it. I was going to sale one of them but I was told I had to find something in 45 days and the way the market is I didn't want to risk it. I make about 776 a month from the rentals so they have cash flow could of been more but covid prevented some things. Thanks for the hard money private lender information dont really want to run into that problem. I guess your right getting some help might be the way to go

    1Reply
  • Andre Houston
    OP
    Rental Property Investor · Renton, WA · Member since 2021 · 45 posts · 11 votes
    5y

    My goal is to get a multifamily unit an house hack I missed that opportunity when u purchased my first rental 

    0Reply
  • Wale LawalBusiness Member
    Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
    5y

    @Andre Houston

    Cash-out Re-Fi on your existing rentals and leverage the bank money. 

    Make sure to know the market you are investing in and know your numbers.

    Goodluck man!

    [email protected]832-776-9582Podcast Guest on Show #469
    NETWORTH BUILDERS5236 Reviews
    WebsiteView Page
    3Reply
  • Andre Houston
    OP
    Rental Property Investor · Renton, WA · Member since 2021 · 45 posts · 11 votes
    5y

    @Wale Lawal thanks for that information I really appreciate the feedback. I did a refi on one of them in 2020 an I did a refi on the other this year I didn't get any money out I basically got the PMI off both. Could I still do a cashout refi if I recently just did one? My credit went down a little also but I have enough equity I would think.

    0Reply
  • Sam Fickel
    Lender · Pasco, WA · Member since 2020 · 84 posts · 50 votes
    5y

    You can use lease agreements to offset the mortgages on the investments to help you qualify for your next. Just know it's 75% of the gross rents OR a 1 or 2 year average of your Schedule E (rental income in your tax returns) after accounting for 75% of gross rents.

    You can also use the prospective rental income on your next property.

    So lucky for you, you only have to eat the payment of your primary residence.

    Also, you can always do a HELOC on your properties with equity to use as a down payment. Especially if you use the BRRRR method, you can pay back that HELOC after you finish the cash out refi

    1Reply
  • Sam YinPro Member
    Los Angeles, CA · Member since 2021 · 584 posts · 738 votes
    5y

    @Sam Fickel

    Ditto. Based one the description you have provided on your current financial standing, a HELOC may be your best bet if you cannot find a partner. That way you can continue to keep the PMI off.

    I am not opposed to hard money as a bridge to get your foot in the door. I would just be sure of the hard money exit strategy before accepting it.

    0Reply
  • Andre Houston
    OP
    Rental Property Investor · Renton, WA · Member since 2021 · 45 posts · 11 votes
    5y

    @Sam Fickel Thank you so much I appreciate the feedback. I think the problem I'm running into my primary house mortgage is 2900 and that's making my debt to income to high. I also have my wife on the loan but it's still to high. I always wanted to do a brrr so a heloc would be the best way to go if I wanted to do that?

    0Reply
  • Andre Houston
    OP
    Rental Property Investor · Renton, WA · Member since 2021 · 45 posts · 11 votes
    5y

    @Sam Yin Thank u for that information I appreciate the feedback

    0Reply
  • Sam Fickel
    Lender · Pasco, WA · Member since 2020 · 84 posts · 50 votes
    5y

    @Andre Houston ok so depending on your timeline, assuming you can't create more qualifying income in a short period of time, you might want to talk to your CPA about how to structure your taxes next year. It might be worth paying more taxes (on your Schedule E) so you can use your rental income toward your DTI. Lenders can ignore the taxes, insurance, HOA, Depreciation, Depreciation, and Amortization, and a few other non-expense or duplicated deductions

    0Reply
  • Andre Houston
    OP
    Rental Property Investor · Renton, WA · Member since 2021 · 45 posts · 11 votes
    5y

    @Sam Fickel Thank u so much I see your in Washington do u have any recommendations I can contact to get that information?

    1Reply
  • Sam Fickel
    Lender · Pasco, WA · Member since 2020 · 84 posts · 50 votes
    5y

    @Andre Houston I'm on the other side of the state, I know a few realtors in your area but I don't know any tax pros. If you know any real estate investors nearby, ask them for a good CPA recommendation.

    If a CPA does their job right, they'll maximize your deductions to avoid you paying taxes. But just like realtors and lenders, you want to find an investor-savvy CPA who knows how to structure your taxes in a way that minimizes your tax liability while also maximizing your qualifying income

    1Reply
  • Andre Houston
    OP
    Rental Property Investor · Renton, WA · Member since 2021 · 45 posts · 11 votes
    5y

    @Sam Fickel Thank you I appreciate the information

    0Reply
  • Jason Lum
    Rental Property Investor · Honolulu · Member since 2021 · 30 posts · 11 votes
    5y

    Google up Mark J Kohler. He or one of his people can help you strategize on the tax side. Its worth spending money on this.

    In my experience, most CPAs will give you answers when asked, but arent so great in creatively planning. Finding those good ones isnt too easy, IME.

    0Reply
  • Andre Houston
    OP
    Rental Property Investor · Renton, WA · Member since 2021 · 45 posts · 11 votes
    5y

    @Jason Lum Thanks I appreciate the information I will definitely google him

    0Reply
  • Austin Steed
    Real Estate Agent · Columbus, OH · Member since 2016 · 593 posts · 664 votes
    5y

    @Andre Houston A lender should be able to use your rental income to offset your D/I ratio. I know lenders in Columbus usually use 70% of rental income. Or you can think they run a 30% expense ratio, which is pretty low if you ask me. 

    My problem with larger MF is the initial cost. The good thing is BRRR's really work at any level. This would keep your equity in properties and help cash flow over all. Banks will like to see you at a lower leveraged position too. We're doing a 10+ multi unit building locally, purchase price was 285k and rehab is 550k. As complete ARV from bank came in at 1.2M. We're just below the 70% so we can pull all our money back out... assuming we stay under budget.

    Depending on how familiar you are with construction this is a very solid way to go bigger. TBH no way I would of had $300,000 for 25% down of 1.2M...

    0Reply
  • Andre Houston
    OP
    Rental Property Investor · Renton, WA · Member since 2021 · 45 posts · 11 votes
    5y

    @Austin Steed Thanks for that feedback I really appreciate the help. The lender I was going through basically told me my d/I ratio was to high because my primary home mortgage is 2900. I was told the person doing my taxes can offset some cost. That's actually what I want to do what u are doing but I wanna use some equity out of one of the rentals to help purchase or like u said use the brrr method so I can pull the money back out to repay the loan. Do you think it's the lender also with the person doing my taxes? I hear all the time on the podcast people taking out money to reinvest I just haven't figured out how to.

    0Reply
  • Austin Steed
    Real Estate Agent · Columbus, OH · Member since 2016 · 593 posts · 664 votes
    5y

    Yeah that 2900 cash out flow is probably hurting you quite a bit. How much are you cash flowing from the other units? Any room to up rents in the near future? 

    0Reply
  • Andre Houston
    OP
    Rental Property Investor · Renton, WA · Member since 2021 · 45 posts · 11 votes
    5y

    @Austin Steed I'm getting $777 total from both rentals. I should be getting more but covid kind of messed that up i wasnt able to move the rent up next year I should be over 1000 for sure.

    0Reply
  • Kim Ehardt
    Investor · Austin, TX · Member since 2017 · 9 posts · 6 votes
    5y

    @Sam Fickel - you reference getting a HELOC on his rental properties. This is something I've tried for, but have repeatedly been told HELOCs are only available on your primary residence. Generally speaking, second liens aren't available on investment properties. The only way I've found to pull equity is to cash-out refi (which then locks me into a higher rate, and also keeps all money out as one note.)

    Do you know of something different?

    0Reply
  • Sam Fickel
    Lender · Pasco, WA · Member since 2020 · 84 posts · 50 votes
    5y
    Originally posted by @Kim Ehardt:

    @Sam Fickel - you reference getting a HELOC on his rental properties. This is something I've tried for, but have repeatedly been told HELOCs are only available on your primary residence. Generally speaking, second liens aren't available on investment properties. The only way I've found to pull equity is to cash-out refi (which then locks me into a higher rate, and also keeps all money out as one note.)

    Do you know of something different?

    Yes, the max LTV is 80% usually, where primary can go up to 90%. Maybe depends on the state? I've never done it myself so I don't know intimate details, I just know that it's an option

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free