I’ve been studying, reading, and watching markets for a couple of years now with the intention of getting into the RE business. My wife and I just moved into the Denver area (after moving around for years, for my job) and I’m ready to get started.
The first thing we need is a house to live in. We are hoping to settle down after moving around so much, so a SFH for ourselves is very attractive (not as an investment, just as a home). We plan to spend around 300k with a conventional 30-year fixed mortgage, and are beginning to make offers now.
Once we have that first home, I want to buy my first investment property. I’m seeing lots of good properties in the Denver area. I’m seeing duplexes/triplexes in the 200 range that are attractive and appear to bring in steady rents with a decent margin. I am getting better at evaluating deals and think that I can find a good one.
My question is about financing. My wife and I have about 725 FICO (each) and had no problem qualifying for a 30-year fixed with 20% down at what appears to be an excellent rate. I’m not sure, though, what the possibilities are for this next loan.
Would it be possible to get another conventional loan on an income property? The lender says yes but he’s vague about it. We have considerable cash reserves (i.e. probably more than the total we’ll owe on both loans) and we are both steadily employed - my wife with a government job and I own a business that has been operating/growing for 8 years.
Does anyone have any recommendations for getting financed for this second loan? Our first lender was recommended by the real estate agent, and has been very helpful. He specializes in owner-occupied SFH so I’m not sure if he’s best for the long run.
Any advice or reality checks appreciated! thanks, Dave
Why not kill two birds with one stone, and buy a nice duplex, live in one half and rent out the other? It’ll cut your mortgage payment in half and then you don’t have to worry about getting two mortgages! I think you’re going to have trouble getting two loans in a short amount of time anyway (especially if they’re both in your name). If you’re set on buying two properties, then finance your SFH in your own name (and get an FHA loan-only a 3.5% downpayment vs 10-20% conventional loan) and then set up an LLC and start financing your investment properties through the LLC.
Hi - Thank you for your reply. We have been considering taking a 3.5 down loan on our SFH, just to leave plenty of cash free for investing. We live a no-debt lifestyle (literally) so it’s hard to get used to the idea of leveraging/borrowing, but rates are low and it seems like a good idea.
We have actually been looking for a duplex in the Denver area but the fact that we need to live in it is making things much harder. For example, we need at least 3-bedrooms and preferably for - most of the duplex units are 2-bedrooms so that reduces the selection. We are much more picky about neighborhoods to live in as opposed to those to invest in, which makes it even harder. There aren’t that many areas in Denver that are a ‘good fit’ for us so we started to consider buying a SFH then investing in a separate property.
That said, I’d be overjoyed to find a 4+2 duplex in a nice neighborhood so that we could move in! The neighborhoods that we most like aren’t exactly exploding with deals, though. The place that we currently live in is for sale - it’s a triplex with a 3 bed, 1 bed, and studio and would bring in around $2400/month. It’s listed as a short sale at 380k, and would need about 30k of rehab. It’s a terrific location and we are considering making an offer on it just because we like living there so much, and some income is better than no income.
I’ve been hoping to find places that have a better margin and could cash flow, and places like that are always in neighborhoods that are good but aren’t right for us. We have a young child nearing school age so we’re looking at schools which, in Denver, makes it tough!
Now I see why you might want to buy a SFH and a seperate investment house, due to the size/neighborhood constaints your mentioned. Before doing anything else, you should probably sit down and run the numbers on the cost of a 20% downpayment VS a 3.5%FHA downpayment + 5 years of mortgage insurance that FHA requires you to carry. See which option makes more fiscal sense for you and go from there. It sounds like you’re already doing some good analysis of properties, so keeping moving ahead and good luck.
Amazing development - the place we are renting dropped in price so we may just make an offer! I will ask my mortgage broker to run a whole bunch of scenarios - rates seem pretty low.
It’s awesome that you’re in a great financial position. Leveraging is going to give you the opportunity to control much more RE and build your business faster than if you purchased everything in cash. As long as the numbers work and you run your business properly, leverage is a good thing.
If you like that triplex’s neighborhood, you should go for it! It will be much easier to manage your rentals being right there. You can be very picky on your tenants. You can put in gorgeous landscaping and enjoy it, while writing most of it off on your taxes. There are huge advantages to the plan.
I see a lot of discussion going on. Very effective and insightful. It seems business is good at your place. Is leverage everything that you’re holding as decision making point?