Rental Property Investor · Napa, CA · Member since 2021 · 12 posts · 5 votes
Hey guys, looking for some advice here. Where I live in California, it just simply isn’t realistic to buy anything with the salary I make currently. I live at home rent free and I know I want to get into the real estate game ASAP especially while interest rates are low seeing as they may rise soon. I was looking into purchasing OOS, particularly in the Georgia/Tennessee area.
My question:
Is it frowned upon by banks or loaners to have my first purchase as a rental OOS? Or would it be okay considered my down payment would be well over 20% and the total loan amount would be less than my annual salary because of the cheaper real estate?
Lenders won't frown because your first purchase is an investment property. They're interested in qualifying you and your financials as well as the property. 20% (or more) downpayment on a conventional loan for an investment property would be fine - as long as you qualify.....
but because of the higher downpayment and interest rates for a loan like this - most investors DO begin their investing through househacking a primary residence with a lower downpayment and better interest rates. In your case, Georgia or Tennessee might be just the ticket...
Lenders won't frown because your first purchase is an investment property. They're interested in qualifying you and your financials as well as the property. 20% (or more) downpayment on a conventional loan for an investment property would be fine - as long as you qualify.....
but because of the higher downpayment and interest rates for a loan like this - most investors DO begin their investing through househacking a primary residence with a lower downpayment and better interest rates. In your case, Georgia or Tennessee might be just the ticket...
@Kevin Tunnell Lenders are looking at credit, DTI, and assets. Whether you are buying in or OOS does not matter. Conventional guidelines require 15-20% down for a 1 unit, and 25% down for a 2-4 unit, but there are also portfolio loan solutions with just 10% down and no MI for 1-4 unit properties. Definitely something worth looking into to scale your portfolio if the downpayment is your biggest barrier to entry.
@Tim Johnson Thanks for the advice! It sounds like as long as I have all my eggs in order ie: property value, cost of repairs, projected rental income, insurance, etc. and I qualify for the loan, then they shouldnt have an issue loaning me the money correct?
@Grant Schroeder Ooo, that’s good information, thank you Grant! So, as long as I’ve got my down payment, somewhere in the ballpark of 25%, and my income qualifies me for the loan, I should be able to purchase OOS with little issue?
There are tons of people who invest OOS and if your bank/ lender isn't comfortable with it, I would just use a local bank of whatever market you are planning to buy-in. @Kevin Tunnell
Hey Kevin, as others have mentioned already, you shouldn’t have any issue as long as you qualify for the loan based on your credit, debt-to-income, and have money for a down payment to qualify for an investment property loan. I’ve helped numerous clients purchase out of state investment properties rather than a primary residence due to living in a high cost area like Cali. That being said, if you cannot qualify in your area on your income alone, another solution would be seeing if your parents would co-sign if you’re interested in buying locally, which I’ve found to be easier personally when buying my first couple of houses.