Getting financing for rentals past 3 or 4

4 Replies

I new to the REI world and I have many newbie questions. So, please forgive my stupid questions. When looking for financing after you already have 3 or 4 rentals, how do you find financing for that 5th rental? Are they looking at positive cash flow from the other properties and take that into account? How do you get the financing when you are at the edge of your personal income? For example, I have a rental and I am about to purchase another. I have been approved up to $515k, but I'm going to purchase a property in the $135-$150 SFH. Say I do that a couple more times....where/how do I find financing once I have several properties? At this point I have a positive CF on my current rental and I will for my new property. I also have roughly $100k in liquid cash in the bank. Thanks for the help and sorry for "stupid" questions.
Originally posted by @Joshua Collier :
I new to the REI world and I have many newbie questions. So, please forgive my stupid questions.

When looking for financing after you already have 3 or 4 rentals, how do you find financing for that 5th rental? Are they looking at positive cash flow from the other properties and take that into account? How do you get the financing when you are at the edge of your personal income?

For example, I have a rental and I am about to purchase another. I have been approved up to $515k, but I'm going to purchase a property in the $135-$150 SFH. Say I do that a couple more times....where/how do I find financing once I have several properties?

At this point I have a positive CF on my current rental and I will for my new property. I also have roughly $100k in liquid cash in the bank.

Thanks for the help and sorry for "stupid" questions.

 No such thing as stupid questions, just stupid unasked questions ;)

I cannot attest to this, but I have heard the number 10 conventional loans per person bandied about quite frequently here. I don't have any conventional loans (yet), but that probably covers you for quite a while. And I don't think it matters how many rentals you have, but how many loans you have. Whether your rentals qualify as income probably depends on the bank. My bank will not consider rental income qualifying income until it has been earned at least 6 months, which also corresponds to the amount of time you have to own a property at my bank before they will do a cash-out refinance at appraised rather than purchased value. 

Different banks will have different requirements or overlays even or the min is needed to do the loan.

At 5+ loans the financing process is the same with respect to conventional financing the only difference is that you need 720 min fico and 6 months reserves for PITIA (prin/int/tax/ins/assessments) for each property you own. So as long as you maintain the min credit and cash/liquid assets on hand whether in actual cash, retirement funds, stocks, CD's, etc then you can qualify.

As for rental income you can use "proposed," rental income even with out a tenant on a purchase of an investment property but on a refinance you cannot use "proposed," rental income so make sure you rent the properties out first before submitting your financing application on conventional programs (fannie mae).

There is no min timeframe for receipt of receipts you can get a lease agreement tomorrow and a copy of the security deposit and you can use the rental income to offset your mortgage payment if its a non owner/investment property.

The information above is accurate that different banks have different requirements. When I am qualifying a client who is in a similar situation as yourself I am able to use the 75% rental income that is indicated on the "operating income statement" provided by the appraiser. As long as one is purchasing a property with a solid cash flow their debt to income ratio goes down with each purchase. 

If one is buying an additional within a short timeframe, they will have to have a lease agreement on the previous one to use its income. The appraisal on the previous one can only be used at the time the loan was being completed. I can't speak to every banks policy, but I can say from my own personal experience as an investment property lender. My clients are not being held to a timeline of receipt to count the rents received on any if their properties no matter where it is in the line of 1-10. 

Of course there are many details that would require you to have a personal conversation with a lender as it relates to your specifics. 

@Joshua Collier  Per Fannie Mae guidelines, an individual can get up to 10 conventional residential mortgage loans. That does not mean that all lenders will do this. Many lender have an internal restriction to max 4 loans per individual.

Once you go 5+ the underwriting guidelines are stricter and you will need significant cash reserves. Other then that now much is different. And Yes, your rental income will be counted in your DTI for loan qualification.

Upen Patel, Mortgage Banker

Federal NMLS# 1374243

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