If my assumptions are correct here is how I would advise my client to structure thier deals. Buy the first 2 family flat using a FHA loans putting down just 3% (low rate, yes you have MI but it's tax deductible now) You'll only need 2 months reserves and you can ask for up to 6% sellers concession for closing costs thus keeping your liquidity (it will be essential , I'll tell you why later) Per FHA guides you must occupy the home so do it and change all you personal stuff. Bank staments, cell phone bills, drivers license. MUST, MUSt, MUSt. Go shopping and find anothe rbargain the minimal down payment will be 5% (10% if the property is in one of the following IL counties: Bond, Calhoun, Clinton, Jersey, Macoupin, Madison, Monroe, St. Clair) but here is what you may not know. you will get only 75% of the rental income of the 1st property you bought so you have to really get 33% over whatever your carrying charges are monthly for a investment property for it not to effect your buying power. To do the new purchase you will have to have the down payment, the closing costs (if no seller assist) 2 months of reserves of mortgage payments for the current property and 6 months of reserves for the fist property you bought.
The value any property you buy will be the lower of the following for the first 1 year (appraised value or purchase price) After one year you can get appraised value and possible take money out equity (monry form that property. Banks have tightened up their guidelines for home equity lines of credit so they will typically only give you the difference between the first loan balance up to 80% at most of the homes value. (i.e.first loan 70,000 hame value 100,000 x 80% =80,000 - 70,000 = 10,000 home equity loan) but only after you've owned the home for at least a year and this is on an owner occuppied property. If you have further questions, E-mail me at firstname.lastname@example.org
There is a rule that banks want to see your ability to manage rental properties for a year before you can purchase a "investment property" that they may try to impose on you. Good luck!
One follow up question (if someone's looking for extra credit), I am going to be owner occupied in my new building. If I live there for two months or so could I move into the next building and get the same financial benefits as the previous building? Such as only requiring 10% down assuming my debt to income ratio is sufficient. If you see where I'm going with this could I keep this system up for property after property or would that irritate some banks?
PS, I have not given anyone thumbs down.
Definitely after a year of purchasing the property you will be able to pull equity out of the home. (maybe a little sooner depending on the lender) The reason for this wait is that the lender will refer back to your original appraisal amount (which was the sales price) since you have only had the home for 2 months. Technically they cant acknowledge there being any equity in your home at all (even though there might be) because of the short time period.
Depending on your credit, income & documentation capacity you may be able to put less down on the investment property than 20%. You can use 401k & IRA's to meet reserve requirements too.
Expect a higher interest rate on the invesment property regardless how much you put down. Lending & rates are all about risk assesment and investment properties will always be considered higher risk than owner occupied units.
as long as the cash flow is positive, its ok
not sure it is really positive after taxes, repairs, etc
housing prices dropping further
the problem with your plan is this
lets say chicago area prices dropped 8%
you just lost 8% equity in your 2 flat
if you had to sell it would not be pretty
house prices expected to drop more