Newbie with two properties - How to finance to continue to grow?

2 Replies

Hello all. Newbie here. My wife is a property manager and she's come across two decent deals in the last couple of years with owners wanting to sell there condos. So we purchased both condos. Our goal is to acquire 5-10 rental properties in the next few years to help fund our retirement. Goal would be to use the rent to pay off the loan on each property and then use rental income to fund our lifestyle after the loan is paid off. We'd be stupid to not use my wife's knowledge in the PM area to get ourselves ahead in life.

The first condo we took out a HELOC on our primary residence to purchase it. Second condo we took out a LOC on the first condo to purchase it. My plan is to continue doing this. Take out LOC on second condo to buy a third property. And so on.

Is this a good way to acquire properties? I've heard we'll run into funding issues after 4-5 LOC. I figured at that point we can focus on paying off one of the LOC to free up cash to buy another property. My wife does the PM and picks the properties to acquire. I'll be the one more focused on obtaining financing.

Any pointers on the financing aspect of acquiring rental properties would be appreciated. Is this a decent way to acquire properties? Any other pointers would be appreciated. Thank you.

Updated 8 months ago

I’m basically looking for reassurance in something that is so new to me. Also: 1. Any reason to wait to purchase next property? 2. Would it be best to get fixed rate loans right now in our situation? I would think interest rates will only rise.

@Eric O.

I don't use banks anymore, but my buyers do. So here's my experience. If you want to use conventional financing, get fixed rate loans on both condos that you have. Free up the HELOC on your personal home which is then available whenever you find the next purchase. The reason is, right now it sounds like you have a free and clear condo which is a target from a Liability/Lawsuit standpoint. The sooner you have debt against it, the less appealing you may appear. 2nd reason, If the whole market came crashing down (again) and you lost everything, wouldn't you rather lose the condos instead of your personal home? 3rd reason, By having the HELOC in place but at a zero balance, you are getting some asset protection. This is because in public record, there will be a recorded mortgage showing the maximum loan amount of the HELOC to any prying eyes.

Happy Investing

Derek Dombeck

My best piece of advice for you is to separate your buying power in order to maximize it.  In other words, you both should not be buying houses together.  You should EACH be buying houses (houses, condos, units, whatever, you get the idea).  Lenders look at the debt and income of your portfolio.  The first 4 are easy.  From 5-10, it becomes increasingly more difficult, and then after 10, you have to switch to portfolio loans or commercial products or hard money.  YUCK!  Stay in the conventional lane if you can, for as long as you can.

Here's the cool part.... You can BOTH use the same checking/savings/reserve account to show reserves (which get pretty hefty as a requirement when you add from 5-10) AND for down payments.  So, in essence, you get twice the amount of buying power with half of the amount of needed reserves.

This will FEEL scary the first time one of you makes their purchase as the other spouse has to sign a disclaimer deed.  HOWEVER, never fear.

Set up a trust where you and your wife are beneficiaries. Create a Will that leaves EVERYTHING to your Trust. This will keep both of you connected to ALL of the properties, even though you will be purchasing them separately. GO TO AN ATTORNEY to set up the Trust and your Wills. You may even be interested in adding an LLC holding company for the money, and different LLCs for each of your properties.....but I don't want to overwhelm you and get ahead of myself here. Your attorney will explain all of the options to you. It will cost you a pretty penny to get this set up, but well worth it in the long run to have it done right, and set up to allow you to purchase separately, but still be connected to all the properties.

Best of Luck!!

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