how do I buy 2nd 3rd 4th houses?

14 Replies

I am almost done with purchasing my first house for rental purpose. How do I fund my 2nd 3rd and more homes in the future. My 1st home will take all the loan that I am approve for. I don't know the process of adding houses?

Collect rent, keep working, build up equity, go do it again. As banks begin to see that you are a successful landlord, they should be able to contribute the income from your property as overall income. You can also work to pay down your mortgage on your first property and eventually 1031 into a duplex or 4 plex. It's less about how much you're approved for and more about how much money do you have flowing. Especially once you get to 5+ units, the banks care less about you as a borrower and more about the cash flow of the property. Be patient, you'll get it.

@Sujan Basnet , continue to save for future down payments and when you are ready for the next property get pre-approved again. As long as your DTI ratio and other factors meet the lender's underwriting requirements then you should be able to continue to add to your portfolio.

OPM is the key. OPM-other people's money whether it is friends, family, HML, or yes..the bank like you just did. I am closing on one today...and using OPM. Remember also the BRRR strategy-buy, rehab, rent, and refi. That is a great way to continue building your portfolio.

In a nutshell, put a tenant in it, wait six months, then re-apply for another mortgage (once you have another down payment saved up). 

Your rental income will count towards your debt-to-income ratio and they will recalculate. 

Here's an oversimplified example:

  • Say before purchase, you earned $1000/mo (from employment or whatever) and paid out $500 mo on debt service. Your DTI is 50% (500/1000).
  • Six months after purchase, you still earn $1000/mo (from employment or whatever), plus rental income from the property of $1200/mo.
  • Your pre-existing debt service is still $400/mo, but now you also pay $600/mo towards the mortgage on your rental property. 
  • Now your DTI is only 45% [(400+600)/(1000+1200)] and you may qualify for another mortgage with your new (lower) DTI, (assuming you have cash for a down payment and good credit).

thank you all so much for all the great info. Most of it is all about down payment. Is it required to put down atleast 20% downpayment on my 2nd purchase?

Originally posted by @Sujan Basnet :

thank you all so much for all the great info. Most of it is all about down payment. Is it required to put down atleast 20% downpayment on my 2nd purchase?

 Most investment properties are going to require 20-25% downpayment

Originally posted by @Sujan Basnet :

thank you all so much for all the great info. Most of it is all about down payment. Is it required to put down atleast 20% downpayment on my 2nd purchase?

Like others have said, it's likely to be 25% deposit, not 20%. BUT, when you RE-finance your first investment, so long as the Lender's 75% Appraisal covers ALL your original outlay, they would be letting you "borrow back" your original deposit, so you'd be good to go for your next one! Get what I mean? Your job is to ensure that the Tenants would STILL be covering all your expenses (at least), even when the property is 100% leveraged! That way, ALL your investments become self-sustaining, and you're only out of pocket your original 1x deposit (until you just keep it). All the best...

@Sujan Basnet what kind of loan did you use to purchase the property? I am using a conventional loan. From my knowledge, newbie as well, my goal is to close on my first property next month. I was wondering the same thing as I started planning for 2018 so I am glad to come across your post. I was thinking about a FHA on a duplex for my second deal.

@Sujan Basnet ,

The bank will only count 75-80% of your rental income,  not sure how your debt ratio is, but just be aware of that.. also, banks will need to see 6-months of reserves available in addition to your down payment.    When you go to the bank, just be prepared and ready!

Originally posted by @Jasmine Benford :

@Sujan Basnet what kind of loan did you use to purchase the property? I am using a conventional loan. From my knowledge, newbie as well, my goal is to close on my first property next month. I was wondering the same thing as I started planning for 2018 so I am glad to come across your post. I was thinking about a FHA on a duplex for my second deal.

 I still have little bit of time until my 1st purchase and it will most likely be conventional loan as it will be the first one. I have got some great suggesation from this post which will help me plan for 2018.

@Sujan Basnet  @Jasmine Benford it's probably better to use your FHA loan first. Benefit from the lower down payment so that you can acquire property #2 that much faster, as you will need the 25% down (assuming you don't live there).

@Filipe Pereira not really. I got a conventional loan for first time home buyers through my lender that requires a 3% down payment. I have too much student loan debt and qualified for more with the conventional rather than FHA. I am not required to live in my property for a year with the conventional like I would have if I went the FHA route. In my particular case, conventional was much better for me. So going FHA the second time around will work best for me, especially once they see the rental income coming in, which will increase my DTI ratio. :)

Originally posted by @Jasmine Benford :

@Filipe Pereira not really. I got a conventional loan for first time home buyers through my lender that requires a 3% down payment. I have too much student loan debt and qualified for more with the conventional rather than FHA. I am not required to live in my property for a year with the conventional like I would have if I went the FHA route. In my particular case, conventional was much better for me. So going FHA the second time around will work best for me, especially once they see the rental income coming in, which will increase my DTI ratio. :)

Congrats, you got the "exception to the rule" on that one! Sounds like a nice opportunity if used properly. Don't over extend yourself, it's not worth it in my book. :)

Happy investing! 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here