Hello Bigger Pockets Family!
Had a fairly straightforward and two quick questions. I am a 26 year old about to purchase my first personal home and would like advice from the many. I am committed to the rental property niche and would like to know if it is a smart idea to purchase a single family home or multi-family as my first purchase. Stay in that home for a year and using that home as my first rental property, while moving onto another one.
I have been told many different ways to get a second rental property while living in my single family home. Hard cash, bank loan, equity loan etc. Wanted to know what you the many recommend as far as funded the second future rental property. Any advice and experience will be greatly appreciated.
Hi Randolph, as for your first question, if you buy multiple units (2-4), you can live in one and rent out the other units. This is referred to as a house hack. I would definitely recommend doing that. When I bought my second house, I rented out the first one and I'm glad I did.
I don't have a good answer to your second question, although I have heard doing 20% conventional is a good idea IF you can get approved and come up with the down payment. That's what I'm working on for my second rental. If you hold rental properties in an LLC, if you end up with 10, or if there are 5+ units in the building, you can't get a 20% conventional anymore, hence the reasoning to do it while you can.
I'm sure you'll get more knowledge out of more seasoned investors than me soon!
If there are decent 2-4 family units in your area, I'd definitely go that route if your ultimate goal is to rent them all out after you've lived there a while. As for the second property, find a good investment property lender who actually does up to the 10, not just 1-4, and start working with them to build a relationship going forward. Cash is best for getting the best price and getting deals not available to those needing loans, so when you have enough equity in your first home, a HELOC might be a good answer for you.
Personally, I think house hacking- living in a property for a while, then moving out and renting it, is the best way to get started. If you can do that in a multi, even better. I wish I would have started that way. As for getting your second property, there are many creative ways to do it. I'd avoid hard money whenever possible- it's very expensive, but can be a useful tool in certain situations. My suggestion would be to buy a first property that is livable, but needs plenty of love. Fix it up while you are living there and force some equity. Once you've made necessary upgrades and repairs, get a HELOC and use is as a down payment on your second property. Buy a second property just like the first one, make your repairs then refinance the whole thing and pay off the original HELOC and repeat the process until you are financially free. You can do it. Good luck!
I bought and sold my first personal residence and am living in my second now. My two biggest hindsight regrets:
1. Not buying a duplex or multi and living in one while renting the other (househack). I didn’t have the knowledge back then. You do, just decide if its right for you!
2. I bought and lived in a small townhome 3 years. Bought as a short sale and it appreciated massively in just 3.5 years. Wish I never would’ve sold it. Should have turned into a rental. Its been 4 years since I sold it and by now would have over $100k in equity from mortgage pay-down and appreciation. Also would be cash-flowing $500-600/mo after all expenses based on what I paid and market rents.
Moral of the story? If you buy yourself a residence, make sure it works as a rental if you are going to leave. Transaction costs are real and could be done and boom, you have another property.
Im a rookie, have one unit that I own as of 10 months ago so there are far more helpful people here than me! But, this has been my 8 years experience in real estate (personally and now part time professionally).
Good luck and hope to hear of a successful and profitable house hack by you!
Depends on your goals @Randolph Bartholomew . I'm focused on cash flow personally, so the more doors the better. Regarding #2, talk to your preferred lender about acquiring more properties. They should go into what your personal DTI needs to be, that's Debt To Income ratio and you also need to know the seasoning period they will place on the first rental property. Seasoning period is typically defined as how long the bank will require to recognize rental income on a newly acquired subject property before calculating those rents into your DTI #s.
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