When do you buy property 2?

Question

Hello Everyone!

I'm just going with the thought:

When you have a FHA loan on property 1 (you live there) after a year and you can move out. When do you know if property 2 is the right move?

Do you guys have a rule of thumb?

BG Jonas

Janice Carter · Answer

@Jonas Agerskov There is no one size fits all rule but the key is when you find a property where the numbers make sense and you can afford the purchase or secure financing. Also make sure the first property is performing well as a rental before taking on the next one.

Kyle Hendricks · Answer

@Jonas Agerskov I am also a lender that focuses on househacking and have done it myself. I am licensed in Georgia and happy to help with pre-approval/numbers to help clarify any of this if needed. Feel free to reach out!

Kyle Hendricks · Answer

Hard question to answer without knowing a lot more (goals, property 1 numbers, property 2 buybox, etc). But to make it simple, I would say if property 1 cash flows or breaks even, you have enough reserves so you wont be cash strapped and stressed, and you find a property 2 that you can afford and pencils, then why wait.

Congrats on number 1 and best of luck on number 2! Exciting problem to have!

Stephen Quesinberry · Answer

Assuming the first one is working well and will cash flow after you move out, I would begin starting your search for the next purchase before the one-year time frame. That way you’ve already been looking at deals, building relationships, and can be ahead of the game when you’re eligible to move forward.

A lot of people wait until the year is up and then start from scratch, which slows things down. If you stay consistent with looking at deals and dialing in your buy box, you’ll be in a much better position to act quickly on the next one.

Also, just make sure you’re clear on the occupancy requirement and intent to occupy for the next FHA loan. As long as you’re approaching it the right way, it can be a great strategy to stack a couple of properties early on.

Ryan Spath · Answer

Hey Jonas,

For me I always knew property #2 was a good move if the property put us in a similar or better situation, and we had the proper reserves after the acquisition. In your instance, when you move out of the first property does this one pay for itself from the rents of the tenants? When you move into the 2nd property do you have the reserves for both properties even after the down payment? For me, when we were moving from property to property it was this simple. Come up with criteria you feel comfortable with and when you have meet the criteria, make the move. RE investing is all about acquiring assets and waiting, it takes time for mortgage paydown and appreciation to help grow your net worth. Similar to planting a tree, you have to water it, prune it, and wait many years 10-12 for meaningful shade.

Denise Supplee · Answer

I’d ask myself, will property 1 cash flow or at least safely break even? Do I still have reserves after buying property 2? And does property 2 improve my long term position enough to justify the hassle and risk?

Brandon Vukelich · Answer

Not to oversimplify it @Jonas Agerskov but my answer is: "asap if the numbers work." Why would you wait or try to hit some perfect timing in the market if you found something today where the numbers worked and you could pull it off? My rule of thumb is to go for anything that meets your criteria if you're locked and loaded to make an acquisition. Best wishes on your plans!

Kyle Hendricks · Answer

Instead of refinancing your FHA into conventional, you can also just use conventional 5% down to househack the second property which is often easier. Happy to chat through this with you. Current rate, equity, cash on hand, etc. are all big factors. :)

Drew Sygit · Answer

First goal should be to free up your FHA eligibility by refinancing to a conventional mortgage.

How much have you increased value via improvements?

Second, you have to live in property for 12 months per your FHA mortgage requirements.

Then you're ready to buy #2.

When do you buy property 2?

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