Down Payment Minimum for First-Time Home Buyer of Rental Property

Member since 2021 · 14 posts · 5 votes

Hello!

I'm currently renting an apartment and have been considering purchasing an investment property to Airbnb. I have zero debt and don't own a home -- what is the minimum down payment I can put on a single unit investment property? I've seen 15% in a few places, given I have a good DTI ratio and high credit, but I'm curious if I could go as low as 10% since this would be my first mortgage.

Thanks in advance!

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Nathan GesnerBusiness Member

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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

Quote from @David Martin:

You can purchase an owner-occupied property with less than 5% down. You need a place to live. Why not purchase a property with two or more units using the low-down option? Occupy one, rent out the other(s).

Scott Trench started with a fourplex. He rented the three other units, a spare bedroom in his apartment, and he even rented out his primary bedroom as an AirBnB and slept on the couch to maximize his return.

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Reid Chauvin
Lender · Nashville TN - Licensed in AL AR DC FL GA LA MD TN, TX and VA · Member since 2021 · 583 posts · 338 votes
3y
Hi @David Martin - 15% is correct if this is exclusively an investment property. You could go as low as 10% if this could be considered a '2nd home'. To be 2nd home eligible you must occupy the property for some portion of the year, you cannot give a management firm control over occupancy of the property, and there are a few additional requirements (see here: https://selling-guide.fanniema...).
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David Martin
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Member since 2021 · 14 posts · 5 votes
3y
Awesome, thanks Reid!
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3y
Quote from @David Martin:

You can purchase an owner-occupied property with less than 5% down. You need a place to live. Why not purchase a property with two or more units using the low-down option? Occupy one, rent out the other(s).
Scott Trench started with a fourplex. He rented the three other units, a spare bedroom in his apartment, and he even rented out his primary bedroom as an AirBnB and slept on the couch to maximize his return.
The DIY Landlord Book4.7243 Reviews
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Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y
You can put 15% on conventional and 10% on hard money. There are private money lenders out there who have lower down payment options as well.
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Andrew FreedBusiness Member
Investor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
3y
@David Martin - I second @Nathan Gesner feedback. Househack a multi and you can get in with a lot less down, as little as 3.5% with a FHA product. Why pay 15-25% down for a property when you can get a primary residence and get into it for cents on the dollar? Additionally, you might as well have your "rent" go towards your mortgage paydown rather than someone else's.
Lastly, if you are going to go the Airbnb model, just make sure the property has another exit strategy. For instance, it should make sense as a long term rental and a Airbnb to reduce your risk. Airbnb has seen some declines since the recession hence you don't want to be locked into that that one strategy and realize it doesn't cash flow after the fact.
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David Martin
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Member since 2021 · 14 posts · 5 votes
3y
Quote from @Andrew Freed:

@David Martin - I second @Nathan Gesner feedback. Househack a multi and you can get in with a lot less down, as little as 3.5% with a FHA product. Why pay 15-25% down for a property when you can get a primary residence and get into it for cents on the dollar? Additionally, you might as well have your "rent" go towards your mortgage paydown rather than someone else's.
Lastly, if you are going to go the Airbnb model, just make sure the property has another exit strategy. For instance, it should make sense as a long term rental and a Airbnb to reduce your risk. Airbnb has seen some declines since the recession hence you don't want to be locked into that that one strategy and realize it doesn't cash flow after the fact.

Awesome, thanks Andrew! The main reason I haven't been considering a house hack is a dearth of multi-family units where I'm living and it not being a very popular area for Airbnb. I'll do some more digging -- I can see how that's the most efficient use of my capital. Thanks again!
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David Martin
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Member since 2021 · 14 posts · 5 votes
3y
Quote from @Eliott Elias:

You can put 15% on conventional and 10% on hard money. There are private money lenders out there who have lower down payment options as well.

Good to know. Thanks, Eliott!
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David Martin
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Member since 2021 · 14 posts · 5 votes
3y
Quote from @Nathan Gesner:

Quote from @David Martin:

You can purchase an owner-occupied property with less than 5% down. You need a place to live. Why not purchase a property with two or more units using the low-down option? Occupy one, rent out the other(s).
Scott Trench started with a fourplex. He rented the three other units, a spare bedroom in his apartment, and he even rented out his primary bedroom as an AirBnB and slept on the couch to maximize his return.

Agreed, thanks Nathan! Multifamily units are tricky to find where I'm living, especially in areas that are safe to live, which is why I was considering this method rather than a tried and true house hack. I'll keep doing some digging, though. Thanks for your time!
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3y
It doesn't have to be a short-term rental. Crunch the numbers to see which performs better:

1. You buy a house with 20% down and operate it as a short-term rental. You still pay rent to a Landlord.

2. You buy a fourplex and operate it as a long-term rental. You occupy one of the units and pay your rent just like any other tenant but it goes toward your mortgage.

I suspect #2 will perform better.
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