How to accumulate Buy and Hold properties

Question

I keep reading posts that say "no money down" and "bought in cash", I guess I don't completely understand what those mean so hopefully this post will clarify that.

I live north of the Boston area, real estate is expensive here. I bought a small condo in 2007 (currently rented but $0 cash flow) and was able to buy a fixer 2 family that we currently live in. Thanks to the market here I probably have about 100k in equity.

Now I couldn't fathom buying either property in cash, so I don't know how a buy->rehab->refi and cashout approach would work for me. My understanding of how to buy a second property would be to put 25% down and in order to use my rental income I would need 2 years of history (which I have now).

Best case that I can see right now is, I'm able to pull out enough money for a down payment on a second 2 family in order to buy it and rent it out. At that point, don't I need to wait another 2 years before I am able to display to a bank my correct income to buy a 3rd?

Matt Mach · Answer

Hi Robbie,

Thanks for the reply. So the condo is basically a wash, I kept it at the time because i didn't want to lose money on it back 2012 but its building equity.

The two family is a very different story. Purchase price was 378, I got 20 percent down from a "gift". I got it appraised last year for 475 and took out 50k (HEL) to keep rehabbing (very comparable house a block away sold for 500k last year). I put 30 of the 50 back into the house (new kitchen, roof, patio, fence, landscaping) and I still have about 20k in the bank. Zillow says about 550k.

So, both mortgage balances total ~$340k. I talked with a mortgage specialist today and my math for DTI (I think I'm close) gave me a max mortgage of 525k at 4% for 30 year conventional before any down payment.

Obviously I'm new to the game but I understand the importance of finding a good->great deal. My biggest issue right now is cash in hand for a down payment. Does refi-ing both mortgages and cashing out the best option here? Should one be done before the other? Can both transactions be done at once? Does that make sense only for buy and hold, flipping or both?

Robbie Reutzel · Answer

Hi Matt,

Well, if you have added enough equity to the 2-family fixer it should appraise for substantially more, no?  Did you buy it such that you will be able to cash-out enough to put down a down payment and cover your expenses?

No money down and bought all cash are very different. Bought all cash usually means it is a fixer and the buyer is using hard/private money to buy, fix, and then refi in the short term to a conventional mortgage.  It works if you BUY RIGHT!!!

You have to be buying well-below market value and forcing appreciation with the fixes or else that dog don't hunt :)

Charlie Fitzgerald · Answer

If you are using a bank for your acquisition financing yes.  If you are using a private lender/HML lender for your acquisition financing, no.