How to get my 3rd Property?!

Question

Hi! I currently have two properties (and mortgages) - a duplex that must remain "owner occupy". 30 year fixed. Then I have a condo which is also a 30 year fixed. I am ready for my next property though - most likely a duplex. I'm not really sure how to come up with the 20-25% down needed though. Are there different ways to leverage the equity on those properties? Is it a good idea? Are there other avenues I should explore? Any advice is appreciated, as I want to get to that next step!

Casey Kooiman · Answer

@Derek Woods

Thanks so much! I'm going to get in touch with a commercial lender and see where that leads me! Thanks for the great guidance!

Derek Woods · Answer

@Casey Kooiman

This can be done on any property.  Whether a realtor has it listed or not.  I have come to find out it is much more common then people think.  Atleast, it is in my area.  You really should talk to your lender about this.  My current lender is all commercial.  Meaning they do not even ask where the DP is coming from.  They do like to see cash reserves but that's all.  It sounds like most of the  loans your pursuing are regular conventional loans.  They have to fit in much more stringent guide lines then commercial.

Derek Woods · Answer

There are multiple ways to go about getting the down payment together.  You could pull a LOC on either of your current properties or both.  That all depends on how much equity you have in the properties.  If your not against high risk theirs always using a 0% credit card.  Pull cash against a paid for vehicle, be sure and remember you'll have to full coverage insurance with that.  SELLER financing would be the best way in my opinion, as their would not be  anything reported to the credit bureaus.  If you financing the DP be sure and figure in that expense to confirm you can still cash flow.

Casey Kooiman · Answer

@Derek Woods Thanks!! I am in the process of refinancing my duplex, and I just paid off my car, so those should both help drastically.

Can you explain a little more the idea of the Seller Financing the down payment? I would negotiate this on the side then consult a lender for the additional amount? Can this only be done through For Sale by Owner deals? For my previous properties, the lender wanted to know that I was the one putting the funds down (not a "gift") and that I had adequate reserves. But that could have just been the type of loan I used...

Derek Woods · Answer

@Casey Kooiman

When I mentioned seller financing I was just intending seller financing the down payment.  I would definitely concern myself with your debt-to-income ratio though.  If you look at your credit report their may be some things on it that you can pay off or refinance to help that ratio.  In my case specifically I owe a small amount on my Harley, but  it's affecting my debt to income quite a bit because the payment is high.  IF I needed too, I would just pay it off and that would drastically help my debt ratio.

My lender now(after 2yrs) is no longer looking at debt to income.  She looks more at the property itself.

Casey Kooiman · Answer

@Roger Rouse Yep - one year. That is one possibility I've considered, but you can only scale so fast... Also, my debt-to-income ration wouldn't support it. I applied for a conventional loan on a duplex I was interested in, and they said my debt-to-income ratio was too high.

I do agree on the debt - it makes me very nervous.

Roger Rouse · Answer

As far as I know, the owner occupancy requirement for conventional mortgages is one year.  So in theory, you could buy a new property each year, move into it, and rent out the unit you were occupying previously.

This would get you much better financing terms on each property -- lower down payment, fixed rate mortgage, and no points.  With an FHA load your down payment can be as low as 3.5%.

I don't recommend going too crazy with debt (credit cards, etc.).  That's a recipe for disaster.  Make sure you can comfortably service your debt and have enough cash reserves to weather vacancies and repairs.

How to get my 3rd Property?!

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