Hi, we're going to be looking into investing in buy and hold SFR. Everythings approximated because I'm in the very first stages, as in deciding if we're really going to do this. But say we decide to bite the bullet. By the end of August we should have everything in order. About $50000 cash, decent credit and 25% DTI. Is it better to put the 20% down on one house (approx $180000), or 10% on two with the hopes of getting LPMI. Say we put 20% on one, leaving a 144000 loan at 4.25%, payment $708, tax and ins $200. Trash and water? 80ish. Rents for $1400, about $400 cash flow. Remember all estimates, numbers could be more or less. Now in theory say we do two at $180000 with 10% down on each, leaving 162000 on each at 4.5 (higher for LPMI). Payments would be 820 plus tax ins and utilities, bring it to $1100 each, rents for $1400. Leaving $300 cash flow each. So is two better than one? It it too much to start? More cash flow rules right? We aren't dependant on cash flow, I'm thinking college tuition or retirement, so setting ourselves up for at least 10 years in the future. Not opposed to selling when opportunity knocks or any other reason.

Hi Michelle, I'm thinking that you should meet with a variety of investors and really start educating yourself on the ins and outs of real estate prior to going in on this investment. From a couple of comments in this thread, I question if you are as close to the reality of qualifying for conventional financing and ready to buy as you might think right now. For example, you mention you don't have a paying job right now. Do you have prior landlording experience? If not, you may find that you have trouble financing the properties, even with the sizable chunk of cash you have saved for the downpayment. Will you have a co-signer or income source that will help the lender out? I'd get on the phone with a few to make sure that you stand ready to purchase property right now. Regardless of whether you are presently qualified, I would begin absorbing lots of information on real estate investing. Books, the BP Podcast, etc. You need to be able to speak the language and understand the pros and cons of the different strategies, then make a choice about what works best in your personal situation. For example, my strategy of buying properties, managing them myself for several years, and once the cash flow grows to an acceptable level, outsourcing management may not work for you if you don't want to manage yourself. Or, you may want more or fewer units. You may find that you can't make those decisions reliably until you've soaked up many stories from many investors. I will punctuate by saying that if I could buy $200K in real estate in Pueblo, I'd be looking for as much cash flow as I could get.

@Michelle Melchione 2 is better than 1 in your scenario. You sound like you are in a good spot financially and could withstand a few bumps in the road. Now it's time to find the properties! Good luck!

@Michelle Melchione I wanted to make a few notes to address some of the financing questions that have been brought up throughout this thread. #1 When it comes to down payment amounts, you must put down at least 15% to purchase a single family home as an investment as was stated previously. It should also be noted that only putting 15% down will carry a pretty hefty interest rate compared to 20% or 25% down. If you choose to go the multifamily route, Fannie/Freddie will require a minimum of 25% down assuming you don't intend to occupy. #2 Another thing to keep in mind is reserve requirements. Conventional lenders will require 6 months of PITIA in reserves for the subject property and additional reserves for each non-subject property once you acquire more. Reserves do not necessarily need to be cash in the bank. Acceptable forms of reserves include cash in checking/savings; investments in stocks, bonds, or mutual funds; a CD; money market account; cash-value in life insurance; and a percentage of vested retirement accounts. #3 As far as DTI, Fannie/Freddie will typically allow up to 45%. A loan officer worth their salt should be able to help you run investment numbers and understand the impact of those numbers on your DTI both immediately and down the road. If you're making wise investment decisions, your DTI should remain stable and ideally go down as you acquire more properties because you're generating cash flow over and above the liability of the financing. #4 Lastly, when you initially acquire an investment property, the lender will take 75% of the gross monthly rental income less your monthly PITIA. The remaining income or loss will be reflected in your DTI. Once you've owned the property for over a year and it begins appearing on your tax return, income or loss reported in the Schedule E of your tax returns will be used for future mortgage qualification. I hope that answers any lingering finance questions that were out there. Happy investing. :)

Think of lease options as like a rent-to-own strategy. You set up a lease contract with an option to buy after a specified length of time. You can specify the amount you will purchase for and the length of time, and you have first right to purchase then. Your lease payments will go toward the purchase if you decide to exercise the option. If you do not exercise the buy option after the specified amount of time, the owner can then sell the property to anyone or just keep it, but you were renting it out the whole time, so it is a win-win for everyone.

Starting out- Go big or go home?

Jordan Turcotte

Real Estate Agent · Kyle, TX · Member since 2015 · 15 posts · 4 votes

10y

@Scott Trench I saw your comment about @Michelle Melchione not being able to qualify for a conventional loan without a paying job. What I also was wondering was would the purchase affect the debt to income ratio of 25%, that Michelle mentioned in her first post. If she purchased the sample property would that increase her DTI to above allowable limits for conventional lenders. Am I correct in assuming that debt payments can't exceed 1/3 of your monthly income for a lender to approve a loan. Does the lender consider the future rental income from the property when determining the DTI during the loan approval process? Scott you might know but I also think Maybe a RMLO can jump into the conversation and add their expertise and help guide Michelle onto the path of buying a rental.

Starting out- Go big or go home?

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