New to forum! Few questions...

General Real Estate Investing
1

Hey all,
New to forums! I have a few questions regarding duplex/multi-family investing…

Few years ago, while in college, I read two books, the Millionaire Real Estate Investor and Investing in Duplexes, Triplexes, & Quads. At the time I knew I was far away from actually investing but I thought it was smart to get knowledgeable about the topic…

Fast forward 2 years and my life is coming together. Starting to settle down, good job, saving money (living rent free :cool) and the time is starting to creep up where I’m going to be ready to look for my first house.

I would like to buy a duplex/multi-family property and rent one side, live in the other. After a few years, I would like to move out and continue to own the property. Then repeat the process, buy duplex, rent out one side, sweat equity, etc. From everything I’ve read this seems to be a solid plan to build equity, obtain some cashflow, and a great start in real estate investment. Am I correct in this statement? I have a few questions though regarding this topic…

How difficult would it be to get a second mortgage once I move out of my first property?

I live in Northern NJ, and thinking about duplexes/Multi-family in Montclair. Does anyone have any thoughts on the area?

What are your greatest resources? REI Club?

What books do you recommend, not just on investing in multifamily/duplexes but also being a landlord? Or any other book you strongly recommend?

Appreciate any comments, thank you!

2

Well in regards to 2nd mortgages, the industry keeps changing daily so what is good today may not in 2 yrs or maybe easier. Typically if you have good credit score (720+) and can qualify income wise, you can get an investor loan which is typically 10-20% downpayment. A good option is to start banking with a credit union since the loan requirements are generally easier and done in-house.

Multi-family is a good option since you get your feet wet and can have someone pay for your living expenses if bought right. However a downside is, you need to fall in love with the property as well. I always believe, fall in love with the numbers not the property. Sorta like thinking with the big head over the small head with woman.

3

I own the book about investing in duplexes, triplexes, and quads. The author bought a lot higher dollar properties than what we deal with. He also seemed to base a lot on property appreciation. I would say to treat appreciation like icing on the cake. Don’t count on it. Buy for cash flow, but you can enjoy appreciation if it happens.
Your plan sounds like a good start to investing. If you go with a normal owner occupied loan, you’ll fall into the 4 loan limit that’s so often discussed on here. If you go this route, you can likely get into the properties with less of a down payment than if you went the commercial loan route. If you go for commercial loans, the only limit to the amount of loans you can have is how comfortable the bank is with you. You can expect to pay a higher interest rate, put more money down, and have a shorter loan amortization with commercial loans.
As far as getting multiple loans, you should keep your credit as clean as possible. Also keep your debt to income ratio low. After you get things up and running, you can show income and expenses for the property. For conventional loans, they’ll consider a portion of the rental income (I believe it’s 75% of gross rent) after 2 yrs.
As far as resources go, this site is awesome but you should also network in your area. Find out who other LL’s use for certain things. Find a reasonably priced plumber, electrician, HVAC person, etc. People who have been doing rentals for awhile will likely have repair people they trust.
It seems that most REI books have a few good nuggets in them, but a lot of the basics are the same. Some books give you all this stuff that sounds really good, but doesn’t work so well in the real world.
Know your market and buy right. Don’t think just anything will be a good investment. Remember, cash flow is key. If the numbers don’t work, walk away or the property will eat you alive.

4

Justin-agreed about the duplex book.

Thank you both for your comments…appreciate it!

5

Have the lending rules changed in the past year? I did not have any trouble refinancing my personal residence last year even though I have more than four mortgaged properties.

I believe the four property limit applies to investment property financing, not to primary residence financing.

6

You’re right. I messed that up.
All of our properties are on commercial loans so I’ve never had to worry about that limit.

7

antmel, sounds like you have a good head on your shoulders and a wise plan. The one potential glitch is having the cash on hand to obtain financing and to continue growing. Most new investors don’t have the cash and, if they do, quickly run out of it if they are buying in a traditional manner. Look into investing strategies that don’t require large sums of cash, or at least your cash. Seller financing, lease purchasing, etc.
Good luck.

8

Some investors will have to secure assets reason why they form LLC .Unlike other business organizations, LLCs need not pay taxes.