Plan to buy more houses

[meadow lark]

Hi guys.  Thinking about how best to buy more properties.  Current stats - own 4 houses.  2 are well performing rentals.   One we live in, and plan to sell in 2014 or 2015.  One is a problem child ( remote location, constant repairs and upkeep.). Will plan to sell in spring of 2013.  Paid for, so we may offer owner financing.
  We are debating going for more SFH or buying 4 plexes.  Unsure which will be more profitable.  I am attracted to 4 plexes partly because I want to pay lower down payments as owner occupier when I buy, and that would give me the chance to buy more property quicker ( a 4plex a year, as opposed to a SFH a year.)
  The other piece is that my wife and I want to move into an RV.  There are several RV parks close to my work, and we have lived in an RV before and loved it.  Where we lived before it was $350 a month lot rent which included water, electric, trash, swimming pool.  I suspect the price would be similar (maybe up to $450).  Plus the cost of the RV, but it is definitely in our plans to buy one eventually anyway...  If we did this we would lower our cost of living, so maybe we could come up with 20% down on a SFH a year.  Plus we could use our 403b loans to pull out $50,000 a couple more times ( me in 2015, 2021 and my wife in 2016, 2022. ). That would work for 8 SFHs or 4 4plexes bought with 20% down.

[Hamster]

Hi guys.  Thinking about how best to buy more properties.  Current stats - own 4 houses.  2 are well performing rentals.   One we live in, and plan to sell in 2014 or 2015.  One is a problem child ( remote location, constant repairs and upkeep.). Will plan to sell in spring of 2013.  Paid for, so we may offer owner financing.
  We are debating going for more SFH or buying 4 plexes. 

Sounds like you currently have 3 mortgages?

In the US, up to 4 is no problem if you have the typical assets, income, and documentation required for the mortgage.

Getting a 5th mortgage is more complicated. I don't think you'll be able to get them with only 20% down at that point, and you'll probably have to get commercial loans (say goodbye to long-term fixed cheap loans) and/or ask around to find a bank that will work with you on Fannie's "5-10 properties program". Fannie Mae only recently (2009) started allowing more than 4 mortgages, but most banks won't go beyond 4 as the underwriting gets much more complicated, and qualifying is more difficult.
Some requirements include:
Minimum 25% down for single unit, 30% for multi; 6 months of PITI reserves; 2 years tax returns showing income for ALL current rental properties, etc, etc.

For more details, just google "5-10 properties program"

This is based on my reading and discussion with the personal and commercial loan officers loclly. If anyone has contrary experience, I'd love to hear it.

of course, if you don't need to finance, you can do whatever you want. Cash is king.

[arebelspy]

Yeah, the limit is 10.  Only some banks have internal guidelines of 4 (B of A, for example.)

Either way though, once you're above 5, the owner occupied benefits are harder to get, I believe.  You'll typically be putting 25% down anyways.

Getting mortgages 5-10 is no more difficult than 1-4, however, that's mostly a myth, but it may have different guidelines, depending on what your lender wanted to see on 1-4.  Hamster's requirements were dead on.

I'm preferring SFRs to multi family at this time based on ROI versus hassle factor and age of properties, but it will largely depend on your area.

I'm currently on a plan of buying 3-4 SFRs/yr. putting down about 25k on each.  The hardest part is finding properties that meet my semi-strict criteria (i.e. don't buy just to buy).

The biggest caveat early is to start slow and make sure you actually want to be a landlord, but with several rentals already, you should know that.

The RV thing sounds way in the future (if you're living in current place until 2014 or 15, and then going owner occupied on multiple places for years..).  So what, 10+ years from now?  I wouldn't worry about planning that far out on something as flexible as where you'll personally live.

[meadow lark]

I have 2 mortgages, my wife has 1.  So we can still buy several more, and hopefully we'll sell our current house, so we'll each have 1 mortgage.
  The point of the RV comment (which I did not make clear b/c of my limited attention span) is the question, "does it make more sense to buy owner occupied or to live more cheaply in an RV and save more and buy properties as an investor?"
  The advantage to owner occupying is obviously being able to buy with 3.5 a 5% down.  My houses so far are roughly around $100,000 a piece.  So $5000 versus $20,000 - $25,000.  The advantage to buying as an investor, is no moving/decorating expenses.  That always seems to cost a couple thousand.  No working on things just for my family - for example, we have dogs so the fence has to be upgraded.  With just a rental I wouldn't do anything with a fence as long as it wasn't a safety hazard, or an eyesore. Also, the rent $ we got would probably be higher than what we will spend living in an RV.  Estimating here, but our current rent minus management fees are $700  and $800.  And then add $150 for utilities.  So let's say it will cost 900 to owner occupy per month.
  In the RV it will be more like $500/ month, plus the cost of the RV. And I'm estimating around $20,000 for the RV.
  So I am estimating that it will be cheaper to live in the RV, but definitely not $15000 cheaper.  Maybe $5000 cheaper, mostly from savings on moving costs, fewer renovation costs, costs related to not buying new things every time we move.  And at that point, if it is a difference of around $10,000 to buy it as an investor, mayb it is worth it?  If we buy as occupants, there will be PMI, and a higher mortgage.  But a lower interest rate...

   Speaking of my dogs though, this question will be moot for a couple more years because of the dogs.  2 of them would be fine in an RV and an RV park, but my German Shepherd not so much.  (Big, protective and a barker.). But, not to be morbid, that will change within the next 5-10 years.

[Another Reader]

Not sure about where you are, but in the Phoenix market where I invest most, there are not many four-plexes in good areas.  I would not trade a good area for the ability to assemble more units.

I wonder exactly how cash flow positive these houses are if you are putting $5k down on $100k houses, paying PMI, and getting $800-$900 in gross rent.  What is your long range plan?  Do you expect to pay off these houses and live on the net rental income?  Are you going to sell and expect appreciation to carry you?  I'm also concerned about the 403(b) loans.  Why $50,000?  What happens if things go bad with the rentals - will you be able to pay these loans back?

Can you provide more details of your plan?  You will get more useful analysis if you can do that.

[SwordGuy]

No working on things just for my family - for example, we have dogs so the fence has to be upgraded.  With just a rental I wouldn't do anything with a fence as long as it wasn't a safety hazard, or an eyesore.

If I were a landlord, I would make darn sure my rental property did NOT have fences suitable for a dog.

[arebelspy]

The fact that your wife and you have different amounts of mortgages won't matter - they'll qualify you together, assuming you file taxes married filing jointly.  You are both responsible for both. Speaking from experience on this one, having talked to many lenders aout it, trying to get around the 4/10 limits. And then, like I said, once you're past four, you likely won't be getting 3.5-5% down, even for OO.

Another Reader makes a good point that you'll be paying PMI, plus putting such a low amount down meaning you're paying a lot higher P&I payment, so you won't cash flow much.. those rentals, then, won't start helping towards FIRE much until they're paid off (15 or 30 years, depending on how you structure the mortgage).

And finally, I disagree with SwordGuy about the dogs.. I prefer to have a broad tenant base, meaning pets = okay for me.  Currently about half my tenants have pets.  But it'll depend on your preferences as a landlord.

[meadow lark]

I guess I'm lucky to be a lesbian then, although we got married in Canada we are not considered married in the US according to federal law.  We are married according to state law.  So yes, until the law changes (next week?  In 10 years?) we can have 8 mortgages btwn the 2 of us.  So maybe that is even more of a reason to hurry up and buy more properties before the laws change.
  Albuquerque is okay but not great when it comes to rentals - the cost of the houses compared to the rent is not great.  I am expecting to get better at finding good deals.  I also may end up looking in other areas (Houston?) for better deals. 
  The $50,000 comes from the fact that is my 403b 's maximum loan.  Yes, I can pay that off from my work salary.  I look it as similar to saving up $50,000 for down payments, I just get to buy the houses sooner, rather than later.
  Cash flow is definitely an issue with putting 5 %down.  And that may be the deciding factor.  Probably we'll end up with a mix of OO and investments. 
  Hamster - commercial loans scare me - too many moving parts.  I'll stay away from them for several more years.

[arebelspy]

Hah, that is a nice advantage.  Sounds like a plan then.  Key thing is running the numbers.

And yes, investing in areas that make more sense.

[SunshineGirl]

Allowing dogs keeps our units rented and keeps our dog-owning tenants around longer. We changed this policy out of need as the tenant quality has declined in recent years and also as our property has gotten older.