How much should I save for my first rental property?

9 Replies

Hi everyone,

So I am looking to buy my first rental property sometime next year in Knoxville TN. I have been saving up money, but I'm not sure how much is enough for my first buy. If I were looking to buy a house that cost around 100k via FHA loan, how much money should I have set aside?


@Eric Hernandez At very minimum, FHA is going to require around 3.5% down, plus you need to think of closing costs, agent fees, insurance, taxes, and cash to cover vacancies.

Unless its your primary residence such as a house hacking idea, FHA won't loan for rental properties alone, I believe. For rental property investments, you usually need at least 20% down payment on any property that won't be your primary residence. I'm in the same boat as you with saving up to buy my first investment property. I have my own residence so Im deciding on if I should just save enough cash and some credit union loans or personal loans, or do a cash out refi on my primary house and invest that cash in a property.

I've heard of people getting the FHA loan but never really moving into the residence. Any idea what are the consequences for people who do take that route?

@Ray Jansma , I was under the impression that you can get up to a 4plex using a FHA loan. 5 units or above is considered commercial so FHA won't cover that. If there needs to be work done to the property, FHA still might work. You can get a 203k loan that will give you the loan to buy the property plus a loan for rehab work.

Now, there are some downsides to using the 203k (which is a part of the FHA loan) and to the FHA loan itself. FHA requires that you physically occupy the house (or just one of the units if there is more than one) for at least one year. The 203k loans require that the work is done by licensed contractors. I've also noticed that 203k loans are hard to get since not many people in my area want to deal with them.

The great thing about FHA is you don't have to refinance after that one year period and you decide you want to move out. You can keep the existing terms of the mortgage, which is great.

Now, I do have to say that I'm NOT speaking from personal experience. Only from the information I have gathered from my research. I'm also looking to get my first property. Best of luck to you!!

@Dakoda Spencer Yeh Im no expert on it, but as you said Im pretty sure you have to live in their property for a year to get financing.  The question was to save up for a rental property so was just letting him know to research the residence requirements:)

Thank yall for taking the time to give me your input !

@Eric Hernandez what's most important is that you have several months in mortgage money and bills in severe after closing. I'm sure what FHA will ask you to have in reserve but for your first investment property you want to make you have a safety net. Do what you are comfortable with.

@Eric Hernandez I suggest you speak with a mortgage broker such as Lou Browning at Summit South Mortgage or Gary Strum at Mortgage Investors - both are extremely experienced in what is necessary to purchase your first rental property - because I do believe, FHA requires you sign and certify you will be using the home as your primary residence.

Victor Jernigan

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