Multiple SFH rental properties- financing question

14 Replies

I currently own one SFH that I rent. I lived in it before I rented it so financing was simple. I am now interested in buying a property solely for renting (already has a tenant); my problem is that I don't have a lot of cash to play with. My bank requires 20% down on rental purchases while only 3.5% on a primary residence. They are also requiring that I show finances to back 6 months of both mortgage payments in case they are vacant.

My question is for people who own multiple properties- do you all pay the 20% down on each property you purchase with only rental intentions or is there something I'm missing? What are some other options instead of paying 20%?

Very new to real estate so any information is greatly appreciated!!

I will be looking to buy my first soon. So I'm not the wealth of knowledge. However im going the house hacking route. Selling my bigger SFH and buying a duplex as owner occupant which will let me go 3.5%. Live in it a year and repeat.

I'm your situation I've read of creative financing. Such as partial seller financed. Most true income properties require 20% or more down. Wish I could be of more help. 

Thanks Michael! I've been looking into creating financing but it all seems slightly out of reach for me. I would love to live in and then rent but I cannot afford to buy in my area (Austin, TX market is unreal) so I am buying in smaller towns where I do business already. Unfortunately I cannot live in the house as it is 8 hours away from my job. My sister currently owns the house I am about to purchase so she agreed to pay closing costs and a friend (realtor) is completing the paperwork for only a small fee, no commission. So, I'm saving money there I just don't have the funds for 20% down but want to continue buying. 

Oddly enough, a bank employee suggested that I lead the bank to believe that I will be living in it. I could pull this off but I don't see how that would work with insurance. I will need different home insurance for renting purposes than if I were living in it. Plus, misleading the bank that holds my mortgage doesn't seem like a good idea!

I was curious if it was normal for investors to put 20% down or not, seems like it is. Thanks again!

3 properties and 20% down on each.

You can buy as an owner occupant several times, first with 3.5% down (FHA) and then 5% down (conventional) after that, but you will have to live in each property for at least one year, and you can only do this about 3 times before the banks catch on.

Plus, if you buy sever properties with little money down (and don't refinance after adding value) you will have a high debt to income ratio and that will disqualify you from future loans.

@Teage Staunton There is another alternative, but it depends on multiple factors.

If you are purchasing the property, under the market value/appraisal value.

You can purchase the house in cash (Doing that is Austin will be an important number) and then Refinance (up to 75% of the Appraisal value)

I'll try to explain it by an example

Home Market Value 100K

Conventional Loan = 20% (20K) Downpayment 80% Loan (Easy)

Cash + Refinance:

Purchase price 85K 
When you refinance, the bank will loan (Same requisites as Conventional Loan) up to 75% of the appraisal value of the property. In this case the 100K * 75% the bank will loan you 75K

Yo paid, 85K the bank give back 75K, so your out of pocket is 10K

Make sense?
Not sure if this will be helpful in your case, but I guess it's an idea

If you are wondering about how to get the money to buy the house and them refinance, you might want to explore Hard Money lenders, that will borrow the money normally for <6 Months (Meanwhile you do the refinance)


Emilio Caamano

Originally posted by @Teage Staunton :

Oddly enough, a bank employee suggested that I lead the bank to believe that I will be living in it. I could pull this off but I don't see how that would work with insurance. I will need different home insurance for renting purposes than if I were living in it. Plus, misleading the bank that holds my mortgage doesn't seem like a good idea!

Definitely don't do this. It's considered fraud and you don't need the trouble. I'm surprised the bank employee even suggested it, unless that person is just completely clueless. 

As to your original question, yes...20% down (or more in some cases) is fairly common for investment properties. 

Originally posted by @Teage Staunton :

Most of the traditional bank, credit union and portfolio lender you talk to will require you put down 20-25%, some even 30-40% down, as your skin in the game. I have talked to quite a few financial institutions in the past 3 weeks to get my finance lined up. Traditional bank will have stricter lending requirement andif you don’t already have a solid financial history for them to see, you will have to be “creative”. Portfolio lender may be a little lenient in some of the requirements but most of them will still require 25% down. Coming up with money is always hard at first, so there are a few suggestion.

  • 1.Try to see if you can qualify for personal line of credit from banks or credit union. Make sure you calculate so that you don’t go over 43% of debt to income
  • 2.Try home equity line of credit. Same thing, make sure after you borrow, you don’t go over 43% debt to income.
  • 3.See if seller financing is available
  • 4.Lease option so you don’t have to come up with down payment. Lease it back out right away.
  • 5.Save your 25% down payment by continuing working or other real estate related work, like wholesaling.
  • 6.Partner with someone else who has the cash. Split the profit 50/50 and you remain as person in charge.
  • 7.There are other ways to find properties for cheap. Like obtaining tax lien list, pre-foreclosure list and contact these people to see if they are willing to sign the contract with you. Get them under contract then flip them.

Most importantly, don’t stop thinking. Keep asking how you can afford it and you will find the way.

I have documented my real estate journey in my blog and right now they are mostly pertained to getting finance lined up. Hope you may benefit from what I have learnt.Main Street Journal

Unless you are buying from a motivated seller, it rarely makes sense to purchase a property that requires no rehab and has tenants in place.  I know that sounds like a broad generalization, but without purchasing significantly below market value or putting in a decent amount of sweat equity, the property will not perform all that well and will hurt your debt to income ratio.  My 2 cents is to buy a rehab, then use the equity after rehab to borrow against for the down payment on the next house.  It's called leverage.  It's not without risk, but it's a great way to grow a monster portfolio without a lot of cash in the deals.  Obviously, there is so much more information about this subject on biggerpockets, I strongly recommend you do your homework before buying (what sounds like) a very average deal.  I could be wrong...perhaps your sister is giving you a fantastic deal.  If that's true, figure out a way to do it.  

@Kyle J. and @Daniel HSieh give sound advice.  Don't mess around with fraud or anything that remotely resembles it.  Bad news and it could lead you down a bad road.  Do some research on your own.  The beginners guide to RE investing on this site is free and has all the answers you need to know including a section on how to finance.  

@Teage Staunton

I noticed you said that your sister owns the property you're about to buy.  I recommend that you look into 

1) Subject To

2) Installment Land Contract

3) Master Lease w/ Option to Purchase

as possibilities.  I think one of these will get you want you want.

I would also try house hacking. Since the residence where you used to live will now be rented I would move into the new house your looking at buying and then once you obtain financing stay the allotted amount of time then move out and rent.

@Teage Staunton

The minimum down with conventional financing for an investment property SFR is 15% and MFR is 25%.

FHA is a great way to go if you haven't used it already..... But would be owner occupied.

@Michael Morin FHA house hacking is a great way to start....... But you can only get one FHA mortgage unless you have extenuating circumstances. Your only option would be to refinance with a conventional mortgage as an investment property as long as you have the equity in the property to do this. Then you can get another FHA owner occupied every year if you this route of refinancing.

@Max T. the 5% down for conventional is for a primary SFR only.

@Kyle J.  

@Daniel Hsieh

is absolutely correct. Underwriting will figure it out pretty quick. Don't commit fraud. How are you going to prove you are going to live in a house that is 8 hours from your job ...... That they are using to verify your employment and your ability to repay the loan? 

@Jerry Padilla , thanks so much for your insight! I have no interest in committing fraud, that's why I'm asking you guys! The reason he suggested it is because I do business in the area. I work for a parent company, many of us work for the same company but live elsewhere in Texas; I can prove employment in a number of cities in Texas. Anyway, the reason I wanted to ask was because I didn't think a bank employee would suggest something fraudulent but his solution did not sound right to me.

Refinancing my first house with a conventional loan as an investment property is not something I had thought of, I will definitely be looking into that. It won't help me buy the house I wanted but a good idea to accomplish what I am working toward.

Seems like looking closer to home and occupying for the first year is my best bet. Thanks guys!

@Teage Staunton

 You should look at duplexes, triplexes, and fourplexes. There are a bunch here in the Austin area. If you owner occupy one, the banks will consider it a primary residence. You will be getting favorable financing but on many more units at a time without living in all of them. 

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