Small farm and teacher wanting to add small multifamily

Waco, Texas
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Small farm and teacher wanting to add small multifamily

Brent JohnsonPro Member
Member since 2026 · 4 posts · 1 vote

Hello! My wife and I have a small family farm in between Dallas and Waco. We are wanting to add a small multifamily property and grow from there. We are trying to figure out the best way to finance. We have equity and retirement but not sure where to go from there. We've researched loans but keep getting mixed advice on the best type of financing. Any help would be appreciated. At the moment we're thinking a HELOC and DSCR, however some advice has been to take a loan against retirement holdings but we've also been told that's illegal. Thanks for any direction or ideas we can investigate further.

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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
3d

Here's basic overview of your mortgage options:

1) FNMA/FHLMC:

  • Closes in your name

  • Best rates, depends on your FICO score, personal DTI

  • Typically minimum 20% down payment

  • May only recognize 75% of rental income to qualify

2) DSCR:

  • Must close in LLC

  • Higher rates and prepayment penalties, uses your FICO only

  • Typically minimum 20% down payment

  • Uses 100% of rental income

There's more to it than this, but that's the basics.

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  • Stacy RaskinBusiness Member
    Lender · Member since 2022 · 1k+ posts · 506 votes
    4d

    I would first want to figure out if the property was in a rural area as that will affect lending options. This is usually determined by how many people are in the local population. Also, if the zoning will allow for a small multifamily to be added. From there, finding out what the permitting process is if it's allowed.

    Sometimes real estate investors don't find out about items like these and then that can affect their profitability. I have worked with real estate investors who had to tear down their units when the rules in their local area weren't followed.

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  • Hossein Sharifi
    Member since 2023 · 39 posts · 17 votes
    4d

    Start with zoning and rural classification before you pick a financing product, because those two gates kill more deals than rate does. A HELOC can work as a short bridge if you have a clear refi exit, but I'd underwrite the multifamily on its own rents and reserves rather than leaning on farm cash flow. On retirement money, a 401(k) loan is very different from a prohibited IRA transaction, so get that from a tax pro first. Once you know the site can hold units, shop DSCR vs. conventional with a lender who does rural small multifamily regularly.

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  • Brent JohnsonPro Member
    OP
    Member since 2026 · 4 posts · 1 vote
    4d
    Sorry, let me clarify. Looking for an existing one for sale within an hour or two from us. (Waco, temple, Killeen) There are universities and military bases in those cities.
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  • Harrison C.
    Member since 2017 · 38 posts · 18 votes
    4d

    Brent, I can't add much on the loan side, but since you said Waco, Temple and Killeen, I'd think about who the renter is before you pick the building.

    Near a base, a soldier can end a lease early when they get orders. That's federal law (the SCRA), so plan on more turnover than the lease says. Near a university everything runs on the school year. A unit that's empty in September is hard to fill until the next semester, so the lease dates matter about as much as the price.

    And at an hour or two away, the mortgage isnt what wears you out. Its move-ins, lockouts and small repairs. I rent houses by the bedroom and every resident gets their own door code, so nobody has to drive over with a key. That and one handyman you trust in that town covers most of it.

    One more thing to run next to the duplex numbers: a regular 4 bedroom house near campus rented one room at a time. Four rents on one roof can beat two.

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  • Joe Piccirello
    Lender · Peoria, AZ · Member since 2026 · 21 posts · 7 votes
    4d

    A HELOC against the farm or your home (if it qualifies and you have usable equity) plus a DSCR loan on the multifamily is a path a lot of people look at when they want to leave retirement accounts alone. DSCR underwriting leans on the property's rents covering the payment, so it can fit when farm or W-2 income alone makes a conventional investment loan messy.

    On borrowing against retirement, the mixed advice usually comes from different account types. Some workplace 401(k) plans allow participant loans under that plan's rules. IRAs generally do not allow borrowing, and self-directed setups have strict prohibited-transaction rules. Confirm with the plan administrator and a tax pro before you lean on that path.

    If you compare lenders, shop with quick quotes first so you can line up the structure (HELOC vs DSCR vs a conventional investment loan) and the pricing side by side.

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  • Arman AhmedPro Member
    Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2024 · 2k+ posts · 938 votes
    4d
    Quote from @Brent Johnson:

    Hello! My wife and I have a small family farm in between Dallas and Waco. We are wanting to add a small multifamily property and grow from there. We are trying to figure out the best way to finance. We have equity and retirement but not sure where to go from there. We've researched loans but keep getting mixed advice on the best type of financing. Any help would be appreciated. At the moment we're thinking a HELOC and DSCR, however some advice has been to take a loan against retirement holdings but we've also been told that's illegal. Thanks for any direction or ideas we can investigate further.

    You've got a few options with the equity you already have, but I'd be careful about borrowing against everything just to get the first multifamily. I'd compare a HELOC, conventional financing, and DSCR based on the actual property and how much cash you want to keep in reserve. I'd also consider looking outside Texas if the numbers make sense. Some Midwest markets have lower entry prices, so you may be able to get into a small multifamily without stretching your capital as much.

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  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    3d

    Here's basic overview of your mortgage options:

    1) FNMA/FHLMC:

    • Closes in your name

    • Best rates, depends on your FICO score, personal DTI

    • Typically minimum 20% down payment

    • May only recognize 75% of rental income to qualify

    2) DSCR:

    • Must close in LLC

    • Higher rates and prepayment penalties, uses your FICO only

    • Typically minimum 20% down payment

    • Uses 100% of rental income

    There's more to it than this, but that's the basics.

    [email protected]248-209-6824
    Logical Property Management4.9459 Reviews
    WebsiteView Page
    1Reply
  • Dan Duenas
    Lender · Member since 2026 · 21 posts · 10 votes
    3d

    You're already thinking in the right direction — and for your situation, DSCR is worth a hard look.

    A DSCR loan qualifies on the property's rental income, not yours: no tax returns, no W-2s, no pay stubs. That's exactly the headache when a teacher's salary plus farm income makes personal-income underwriting messy. The lender underwrites the deal, not your day jobs.

    Two concrete options to stack against the HELOC: a DSCR purchase loan (down to 620 FICO, no ratio required, up to 85% LTV) leaves your personal finances and your HELOC untouched — the HELOC becomes your backup reserves instead of your down payment. Or a V25 purchase: 25% down, no income required, no credit score required, no seasoning of purchase funds, no DSCR ratio required.

    Right call questioning the retirement-loan advice — get a tax pro's read before touching that. If you find a place in the Waco area, happy to run your numbers — Dan

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  • Adam Summerer
    Lender · Franklin, TN · Member since 2026 · 59 posts · 8 votes
    2d

    HELOC for the down payment plus a DSCR loan on the building is a pretty common combo, just ask early because some banks won't do a HELOC on acreage or ag-exempt land. Borrowing against a 401k or 403b isn't illegal if your plan allows loans (usually up to $50k or half the vested balance), what gets people in trouble is an IRA owning property you personally benefit from. On the building, 2-4 units fit regular DSCR programs, and there are lenders that do 5-8 unit DSCR at around 75% LTV, but those usually want 700ish credit and some landlord experience.

    0Reply
  • Brent JohnsonPro Member
    OP
    Member since 2026 · 4 posts · 1 vote
    1d

    Thanks for all the feedback. Ya'll are so encouraging. I don't see a spot on the rental calculators to put a HELOC payment into the equation. Am I missing it? When you are looking for properties is there roughly a cash flow goal you're shooting for? $200 per unit or $500 per property, etc?

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  • John Leland
    Specialist · I give advice - [email protected] - I focus on states where investing is profitable, reasonably safe & secure · Member since 2026 · 73 posts · 15 votes
    1d
    Quote from @Brent Johnson:

    Hello! My wife and I have a small family farm in between Dallas and Waco. We are wanting to add a small multifamily property and grow from there. We are trying to figure out the best way to finance. We have equity and retirement but not sure where to go from there. We've researched loans but keep getting mixed advice on the best type of financing. Any help would be appreciated. At the moment we're thinking a HELOC and DSCR, however some advice has been to take a loan against retirement holdings but we've also been told that's illegal. Thanks for any direction or ideas we can investigate further.

    Don't touch either one. Use alternative financing to stay safe and keep retirement unthreatened. You can take over someone's loan without having to go through the bank. Minimize the risk.

    0Reply
    • Brent JohnsonPro Member
      OP
      Member since 2026 · 4 posts · 1 vote
      1d

      I’ve heard of that but never met anyone that’s done it. I thought most home loans weren’t assumable because of the due on sale clause?

      0Reply
  • Andrew Kunisawa
    Lender · Ventura, CA · Member since 2018 · 3 posts · 0 votes
    1d

    You’re looking at 2 different things, qualifying and what is a good investment?

    Qualifying a lender wants at least the lease to cover the mortgage with taxes and insurance included. That’s called the piti payment.

    For the second part, what’s a good investment, there are 2 parts. If it cash flows after property management, vacancy, maintenance $500 a door that is great. There is another kind where it doesn’t cash flow and you hold the asset for the appreciation of the property. If there is a negative cash flow you have to measure that against the appreciation of the property.

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  • Divin KanyamaBusiness Member
    Accountant · Seattle, WA · Member since 2025 · 351 posts · 132 votes
    22h

    @Brent Johnson A HELOC paired with a DSCR loan can be workable, but it helps to separate the two decisions: how to fund the equity and closing costs, and how the property itself will be financed. A DSCR lender will focus largely on the property's rental income, while a HELOC puts the family farm at risk if the new investment underperforms.

    Before borrowing against either asset, compare several structures: a conventional investment-property loan, local bank or credit-union portfolio financing, a commercial loan for a larger multifamily, seller financing, and a DSCR loan. Compare total cash required, rate and points, amortization, reserves, prepayment penalties, and whether the property still works with conservative rents, vacancy, repairs, and management.

    Borrowing from retirement funds is not automatically illegal, but the rules vary substantially by account type and transaction structure. Some employer plans permit participant loans, while using self-directed retirement funds can create prohibited-transaction issues if handled incorrectly. A good next step is to take the proposed deal and complete financial picture to a local portfolio lender, a mortgage broker experienced with small multifamily, and a tax or retirement-plan professional before pledging the farm or touching retirement assets. The best structure is the one that preserves adequate reserves and does not put the core family asset at unnecessary risk.

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  • Wale LawalBusiness Member
    Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
    18h

    @Brent Johnson

    With this in mind, I believe that in light of the equity of the farm as well as from my retirement savings account, I shall manage to make some money, and hence it is imperative for me to look at all my options in regard to cost and liquidity as well after everything is over. The fact whether DSCR and HELOC loans will work for me or not is very much situational.

    Good luck!

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    18h

    Brent, I would be careful about choosing the financing source before you know exactly what the property needs to produce. I'd compare the HELOC, DSCR loan, and retirement option based on total cost, monthly payment, liquidity after closing, and how much cash you need to keep available for the farm and the next property.

    I’d also be cautious about using retirement funds simply because they are available. The tax and potential penalty consequences can be very different depending on whether you are taking a distribution or using an actual retirement plan loan.

    There is a tax point with the HELOC that is easy to overlook too. The fact that a loan is secured by your home does not automatically determine the tax treatment of the interest. How you actually use the borrowed funds matters, so I would keep the proceeds clearly documented if they are being used for the investment property.

    For the multifamily itself, I’d make sure the numbers work based on realistic rent, vacancy, expenses, taxes, insurance, and debt service before deciding how much leverage to use. Feel free to DM me, I’d be happy to send over a few resources that may be helpful.

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  • Andrew Kunisawa
    Lender · Ventura, CA · Member since 2018 · 3 posts · 0 votes
    5h

    "On the calculator question — most of them assume one loan, so there's no HELOC line item. Run the DSCR loan on the building as the primary, then subtract the HELOC payment separately from cash flow. And model the HELOC as interest-only (balance × rate ÷ 12), not like a second mortgage — plus stress-test it a couple points higher since it's variable."

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