I just recently bought my first income property out of Stockton (triplex) and have been renting it out. I did an FHA with the 3.5% down. I am looking to start scaling but don't have much money to invest with the next property. I am also looking to buy a big home for my family next year as well. I wanted to save for a down payment here in the bay area as you know everything is super expensive. The next investment I am looking to invest in Colorado Springs, San Antonio, and Arlington. I have them narrowed down to doing out of state because its cheaper and possibly another in Sacramento area.

I guess my question is what is my best option as far trying to put as little of my money into my next investment? 

I make around 100k a year and do have a little saved up but not enough for a bay area home yet. Next year I will get a raise and be able to account for renting out all 3 of my units.

Is a HML my best option? and if so what rates should i be looking at if I was to get a HML? Im very new to BRRRR so Im trying to do my due diligence and cover all my basis. I am trying to scale because I work in construction and don't want to work in it forever.

Thanks in advanced.

HML is probably your best option if you want to do it quickly. With you hacking the property, you have some leverage because you can get a much higher LTV as an owner occupant on a HELOC. The quicker you can build equity through thoughtful rehab and upgrades, the better, as it will be more difficult to access that equity after you move out.

At only 3.5% down, you should have laser focus on getting to 20% equity asap so you can get rid of your PMI- it's a waste of resources and will harm your DTI.

Best of luck! 

I was making 35K a year when I bought my first rental in Sioux Falls.  That was about 5 years ago.  Since then I have bought about $2 million dollars in real estate and still make about 40K per year, with a family of 6 to care for.  I did this with OPM.  I have either syndicated each deal, or borrowed the down payment resources from friends and family and payed them back over the next several years.  First few years are tight on cash flow, but it starts adding up after that.  I pay between 5% and 7% for the private loans.

@Corby Goade thanks for the info I will have to start looking for HML from local RE investors. I wish I had more involvement as far as family. I unfortunately will be doing this alone my wife currently is not working so I am trying to scale with only my income to account for.

@Daniel Ordonez Don't stress out- you can absolutely do it. I started out in exactly the same way. About 10 years of focus and hard work and I was able to quit my day job. Anyone can do it- financial support from friends and family can speed up the process, but it's not necessary to achieve your goals. Get it!

How much of your income do you save? If you want more of your own money to invest, consider increasing your savings rate.

Working in construction is your advantage. You probably know better how much work a property needs. You probably have better connection in construction industry, for any rehab need, so you can pick the best choice of contractors/workers. Some investors may want a partner like you, and they may have money. And some construction workers do side gigs to earn extra money.

You just got started. You had your own work income alone in the past. Now you have a property that works for you. And you will only have more leverage as time goes, and they grow faster and faster. Be patient.

@Daniel Ordonez What is your goal with your strategy?  Cashflow? Appreciation? It seems like it's cashflow, yet you have chosen expensive appreciation areas (they may be cheaper than CA, but they are still expensive). Are you attached to the areas? There is a whole mid-west part of the US that is cheaper (still high quality) and cashflows way better.  

As far as low money down, HML could work. But building a network of private investors will most likely be better. If you do that, there has to be enough meat on the bone to share.

@Yaohua Li @Whitney Hutten I have been saving about 3k a month but like I said I am trying to save for a home here in the bay area so it will take allot. 

I am not attached to any area specifically. Im only looking into those areas because they have some of the lowest unemployment rates, work, and near colleges/ universities. 

I am looking for cash flowing properties. I want to replace my current income. I want to purchase a home for my family here in the bay and get to the point where im financially free. 

@Daniel Ordonez congrats on the Stockton purchase!!

I just recently closed on a SFR here in Stockton as well using an FHA loan with DPA so I basically put zero money down. Currently house hacking the property.

I’m in the same position as you, trying to figure out how I can scale with saving $2k a month.

I've been looking at Cleveland and I might BRRRR a property out there soon or I want to do what you did, and get a multi family in Stockton or Sacramento

@Allan Pilapil

Congrats to you as well! Yeah Stockton was a great starting place for me and im hoping i can possibly add another property to my portfolio out there. I speak spanish as well so that helped getting families moved in asap. I am also managing this one on my own but I am looking to scale so i will have to get a property manager at that point. 

That area is good to begin at but i would highly recommend getting a MF your next property. I feel like house hacking is more time consuming. To each their own i guess on that specific.  

@Daniel Ordonez

What area of Stockton are you in?

I agree a property manager would be a game changer

I initially wanted a MF but my FHA loan was paired with DPA funds and they restrict it to only SFR

How’s your triplex doing so far and have you done any work on it?

@Allan Pilapil

I havent done anything as far as fix. Ive mainly done minor fixes and making the property more livable. I am planning to fix up one of my properties that the contract is up in December. It does need some fixing. Hopefully add a little value. my appraisal has already given me 10k in equity so Im doing ok there so when i refinance in 9 more months. 

to qualify for your next loan you will need to show that the triplex is cash flowing for you, which means you will have to account for the rental income when it comes to your taxes, a lot of property owners over look that piece of it so make sure you got your paper trail lined up.

I will be cash flowing, not taking out any for vacancy and or repairs because i believe they dont account for that when looking to get approved, is about $1300. I have been writing receipts and trying to keep a log of it to make sure i have some type of paper trail for myself but for the tenants as well. @dj_dawson

@Daniel Ordonez Consider using software to manage the "paper trials". Otherwise it will get messy eventually.

From a conversation with a banker, my impression is that their bank will either look at 75% of gross rent (when you don't have a 1 or 2 year rental history), or 100% of what you reported on schedule E (which is rent deducted all repairs and things).

@Daniel Ordonez The math is pretty straight forward. A conventional lender will take the rent you bring in and credit 75% to your income column, then take all the expenses and put it in your debt column. So the less money you put down on a property, the better it needs to cashflow. If you have more excess income, that will improve your DTI. If you have excess expenses (which I'm gathering is the most likely scenario), your DTI will get worse... perhaps shut you down from lending altogether. Unless you are purchasing a househack in SF, you may find yourself in a cashflow strapped situation and without the ability to obtain more property. This is why so many investors from coastal cities rework their investing plan to cashflow markets.

@Yaohua

@Whitney Hutten

Thanks Yaohua

Whitney I am trying to invest outside of the state but def open to investing locally but it is expensive. I actually have been keeping my costs down and debt very low as far expenses. Fortunately I am living with my wife's parents and rent isnt much for us right now ($600). I will be getting another raise in January and another in July so my pay is increasing easily over 100k a year and thats without any OT.  After 1 year I can start to count my 3rd unit as income and that should increase my buying power correct?

Originally posted by @Daniel Ordonez :

I just recently bought my first income property out of Stockton (triplex) and have been renting it out. I did an FHA with the 3.5% down. I am looking to start scaling but don't have much money to invest with the next property. I am also looking to buy a big home for my family next year as well. I wanted to save for a down payment here in the bay area as you know everything is super expensive. The next investment I am looking to invest in Colorado Springs, San Antonio, and Arlington. I have them narrowed down to doing out of state because its cheaper and possibly another in Sacramento area.

I guess my question is what is my best option as far trying to put as little of my money into my next investment? 

I make around 100k a year and do have a little saved up but not enough for a bay area home yet. Next year I will get a raise and be able to account for renting out all 3 of my units.

Is a HML my best option? and if so what rates should i be looking at if I was to get a HML? Im very new to BRRRR so Im trying to do my due diligence and cover all my basis. I am trying to scale because I work in construction and don't want to work in it forever.

Thanks in advanced.

Market is so tight in 2020. In like 2009-2012 HML made sense as there was so much inventory. Today's market it eats all of your profits. Save up enough cash to do 1 at a time then snow ball it from there.

@James Wise ok makes sense I am looking into partnering with someone so we can be ready if the market presents an opportunity. With 2 of us at least we should qualify for a conventional home loan and we can purchase an income property. It would have to be out of the area and possibly state so that we can afford it if anything goes sideways. 

There are lenders in the Sacramento area that will do 90% of purchase and 90% of the rehab.  6 month terms and 2 points and 10% then refi once you have renovated and gotten a tenant in.  Work with a portfolio lender like El Dorado Savings or Safe CU if you plan to scale up over 10.  I have seen people do 3 per year and build a nice portfolio in 5-7 years.   Pick an area and execute your plan.  Realistically you won't be able to do it as effectively out of state.  No matter how great your "team on the ground" is... you are still a guy from CA with deeper pockets (in their mind).  Sacramento is great with a lot of upside but if you are dead set on better cash flow from day 1 then look at Yuba City.   

Great idea to use other people's money. Just be careful on buying that dream home. It's easy to get a bunch of fancy upgrades and wind up spending all that money you would have invested on the monthly payments. Could you put off the home for a year or two? It'll do wonders for your investing.