I'm starting the process of looking for my next deal just not 100% sure what method to use. I'm interested in hearing how other investors purchased their second property. I am throwing a few ideas around and want to narrow it down to 1-2, then pursue a great deal with that strategy in mind.
Current situation: House hacking a duplex since Sept 2017- FHA financing 3.5% down @ 3.65% 30 year fixed. After PITI I pay about $50 a month not including utilities.
- Refi into conventional pull out the little equity I have and use it as a downpayment in addition to savings for something else. Realistically could only pull out 10-15k.
- Work with a hard money lender to have them finance 80% of deal and 100% of flip- use the extra profits as a downpayment on another property.
- Save enough for a downpayment and use the BRRRR strategy.
Open to all ideas/methods that have worked for other people from the standpoint of financing/acquiring your next investment property.
@Michael Doherty I used my HELOC to acquire and rehab my second and third deals. And then when I got more comfortable I started using hard money lenders which enabled me to do more deals at the same time.
A. You have the best interest rate possible because at this time, you will only have higher interest rates, another set of closing costs. Not much benefit to doing this.
B. 3 points and 12% interest only is the going rate for hard money. I have renovated a couple of houses and used the funds to buy a better quality long term rental. Flip, flip, b&h.
C. Have also saved up to buy turn key properties.
D. The HELOC strategy, above.
C. Buy another light fixer (to add sweat equity) or multifamily (for extra cash flow) and occupy for 12 months. Do this again. And again. And again.
I am in a very similar situation!
I purchased my 3 family in Aug 2017-
You can refi into a conventional and use FHA again.. that is what I am considering doing
It sounds like you have a lot of options and they're all good possibilities, but if you're willing to refi your current property and move to your next one, you should seriously consider doing that, assuming you'll still be financeable for conventional loans. Conventionally financed investors are more competitive because the deals will cash flow better than other investors that are trying to make the numbers work with commercial loans. So if you refi into conventional, then you can use another FHA loan with the 3.5% down and your 10-15k will go farther than if you were trying to put 20% down. Plus, you'll have more certainty when buying with the FHA at the outset rather than the brrrr method where you rely on the appraisal to come in.
Something to keep in mind when you select your next property...If you're going to do another FHA loan, you'll have to demonstrate that you'll be owner occupied in this next property as well. If you go from your current duplex to another duplex, there will have to be an explanation as to why you're moving. Better school systems, more space, better amenities, etc. If you're going to a single family home then you don't have that consideration.
@Shiloh Lundahl Ya that's a great method and I think I will use it down the road but I think at this point I am shying away from the HELOC simply because I do not have enough equity yet.
@Kerry Baird when you say buy another multi- do you mean buy to live in and then refi and do it all over? Or save enough for a downpayment add sweat equity then use the BRRR?
Live in a 4 plex and obtain low owner-occupied rates and down payment. Rent out other units. Stay at least a year. You could go forward this way with a focus on low down, low interest on owner-occupied properties that also produce cash flow.
For pure investment mortgages, 1-4 are “easy” and 5-10 start to get onerous with higher deposits needed, 6 months reserves (monthly PITI payments) commonplace, and interest rates start going up. After 10 mortgages, we use portfolio or commercial money.
It is easiest in all factors (except your personal comfort at moving and living in plexes) to go forward doing owner occupied.
We didn’t do plex units, but we did move frequently when we were younger, turning the previous house into a rental, and getting the next house after 12 months.
I'm in the exact same situation, i'm house hacking my duplex as well which I bought back in Sept. 2017. I used the VA to acquire this one and i'm not sure which method I want to use for the next duplex. I can still use the FHA and 3.5% if they will loan to me. My issue is my debt to income ratio; daycare is killer. My plan is to pursue the duplex with the conventional loan and if that not an option i will find a SFH until she gets out of daycare. For you I would try something similar and if you choose to refinance don't forget about all the fees that accompany it. You will get a higher interest rate and roughly 3 grand in closing cost.
@Michael Doherty If the numbers work for a BRRRR then they will work for a flip. In my opinion, now is the time for you to take a calculated risk and go with either the BRRRR or flip route while you are living as cheaply as you are in your primary residence.
Also, odds are for a BRRRR or flip to be worth it numbers wise in the CT markets you will be looking in you will have to get some kind of hard money or private money loan for the project anyway.
Typically the flipable or BRRRR'able properties around here are not financiable by a bank on the purchase side if you are purchasing as a non owner occupant because of the condition of the home.
Hope this helps, feel free to reach out anytime.
Lots of great ideas in here! This thread is very helpful
Thank you all for your posts- appreciate all the insight!
@Michael Doherty I see lots of great advice here. The only thing I would like to add would be to really consider what you WANT to do.
What are your long term goals? Do you WANT to own/manage more rental units? Do you WANT to flip houses? Are you considering a flip just to make money to fund more rentals or do you want to make that part of what you do? Do you have a job you plan to stay with or are you looking to go full time REI?
I'd love to hear your end game as sometimes that helps narrow things down further and may assist in getting even better targeted advice.
Also just an aside, I am in a very similar housing situation and this is what I've decided to do:
Being as brief as possible... I'm house-hacking a duplex I purchased several years ago. I updated while I've been living there inexpensively and am now currently in the middle of a cash out refi where the cash will go towards reserves(which are key) and the remainder will help me fund my next multifamily house hack.
My plan is to purchase another house hack that needs updating and get some sweat equity out of it (I'm a carpenter by trade) all while continuing to live inexpensively and saving for a more permanent residence( either new build or complete remodel) within the next 5 years or so.
I then plan to use savings and any equity in my primary residence through a heloc or otherwise to continue to fund more multifamily (or possibly other endeavors) at a moderate/conservative rate, all while the investment properties pay themselves down where I will either continue to live off of the higher cash flow once they're payed off or sell some or maybe something else.
So again I ask, what are you're future goals/ end game?
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