First ever post on the BP Forums, so exciting! Have listened to many podcasts, and figured it was time to get in on these forums. My wife and I have a 2 family property that is currently owner occupied, and have owned it since early 2021. We are thinking of taking the next step in our investment journey, but are torn on which direction to go. We used an FHA loan on this multi family, and are interested in knowing what our options are for funding our second investment property. We are open to moving in there if needed if it means being able to obtain it for less money down, and are currently saving regardless of the options we have. Any insight would be greatly appreciated in helping us take this next step!
Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
3y
Hi Daniel, I think the big question is "how much cash do you have to inject?" I just answered another question about the cruel math trick that happens when you use Fannie/Freddie/FHA to finance multiple properties. At some point pretty quickly, most people cease to qualify because of how those types of loans calculate Debt to Income ratios. We started flipping and then moved into longer term holds. You might have to considering flipping to generage the down payment necessary to keep scaling. Something like flip a couple to generate capital, then hold one, flip two, hold one, ect. That's actually how we did it. Doing only rentals without doing somethig to generate the next down payment can make it hard to scale. That's actually how we do it. I hope it goes well for you.
Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
3y
Hi Daniel, I think the big question is "how much cash do you have to inject?" I just answered another question about the cruel math trick that happens when you use Fannie/Freddie/FHA to finance multiple properties. At some point pretty quickly, most people cease to qualify because of how those types of loans calculate Debt to Income ratios. We started flipping and then moved into longer term holds. You might have to considering flipping to generage the down payment necessary to keep scaling. Something like flip a couple to generate capital, then hold one, flip two, hold one, ect. That's actually how we did it. Doing only rentals without doing somethig to generate the next down payment can make it hard to scale. That's actually how we do it. I hope it goes well for you.
Lender · New York, NY · Member since 2023 · 749 posts · 510 votes
3y
Welcome to BP - it sounds like you are well on your way in real estate investing and are taking all the right steps. Regarding your loan options, your main choices will be to go "conventional" again (traditional Fannie/Freddie Loans) or towards "DSCR Loans" as you grow your portfolio.
Generally, if you still qualify conventional, that route makes sense as this will be the lowest rates and fees. However, you will need to qualify with W-2 income, DTI calculation and a lot of hoops.
Many people move towards "DSCR Loans" as they grow their portfolio and no longer qualify (or want to deal with the slower speed and hassle of conventional). These loans are going to be a bit higher in rate / points (generally 1% higher or so) but have a lot of advantages such as easier qualification (no W-2 required, no DTI or income verification), allow for borrowing through LLC structures, don't show up on your personal credit report, etc.
Here's a helpful article on BP on this loan product
DSCR Loans: What Are They And How To Get The Best Terms
Lender · San Diego, CA · Member since 2022 · 130 posts · 75 votes
3y
Hey Daniel! Both Doug and Sloane offered great pieces of advice. I would also like to add that most people find DSCR loans suit what they are looking for when they are planning on holding the property for a longer period. However, as Doug mentioned, it may be smart to do flips in order to accelerate the rate you are obtaining properties; in that case, you could even use a bridge loan to hold a property for 6-24 months. Of course, a short-term loan is going to have higher rates. So it really all depends on what suits you and your wife's investing goals.
Realtor · Providence, RI · Member since 2022 · 404 posts · 262 votes
3y
@Daniel Kohn - depending on how much equity you have, you could also consider selling your existing 2-family, which will free up your ability to use an FHA for a property with 3-4 units. It is much easier in the long term to scale 3-unit+ properties versus 2 units.
Lender · Franklin, TN · Member since 2022 · 33 posts · 8 votes
3y
you can actually have more then 1 fha loan. if your plan is occupy the new property you could look at doing another fha loan (there are however certain requirements) or regular conventional loan (down payment would be based on the unit count) loan terms are more favorable on these types of products. i would save the DSCR stuff for when you exhaust being able to qualify (income wise) for regular loan products. hope this helps