How to finance multiple properties?

Question

I'm in process of closing on my first rental purchase, it will be a STR.  It will be 40% down payment, 60% financed.

I'm already looking at my next property.  What are tips and tricks as you scale out your properties on the finance end?

Joseph Coleman · Answer

I would recommend speaking with your Lender and CPA every couple of months to plan for your next property because your taxes and qualifying for a loan go hand in hand. On an STR you may be able to file with a schedule C or schedule E. How you file and when you file will have an impact on your ability to qualify for your next loan loan. Ideally, your lender should have experience in RE investing and a breadth of different loan products they can offer to you. It will be a lot easier if your lender can act as a coach for how to best use debt as a tool to scale your portfolio.

Daren H. · Answer

I am not understanding the comment 40% was put down to ensure there is an income buffer to cover expenses. Is this saying that you wanted a lower mortgage to cashflow better to cover expenses? Why would someone want to do that? You should be buying deals that cover expenses, vacancy loss, cashflow, etc. with the 20% down. What am I missing here?

Brayden Hrycko · Answer

Hey @Michael Sylver,

Typically i'd recommend to keep more of your $ in your savings in case of expenses/vacancies. It also keeps $ around to buy more properties. Happy to go over your future options with you as well.

Scott E. · Answer

Wise move. You didn't share how much you're working with but some thoughts...

- Refinance this property if/when rates come down and tap into some more of that equity

- Look into markets where cap rates are higher and less money down is needed to cash flow

- Think about your network and who you know that has cash and might be willing to partner with you

Jay Hurst · Answer

@Michael Sylver   Is there a reason you are putting 40% down on this purchase? Because if you can put down 20-25% on this purchase that will leave you that much cash for the next allowing you to scale quicker.

Zach Edelman · Answer

Michael,

As you look to scale your portfolio, some things to consider/look out for financing wise from a scalability perspective are the following:

- Concentration Limits --> not sure if you're currently going conventional or intend to in the future, or if you qualify, but conventional lenders following agency guidelines have an absolute maximum of 10 rental properties. Just something to keep in mind.

- DTI Ratio --> This one's pretty self explanatory, but again, if you're intending on going the conventional route, just keep on eye on your DTI to ensure you qualify. An alternative in the event that your DTI does not qualify are DSCR loans, which do not factor DTI into their underwriting.

- LLC/Partnerships --> I, from a lending perspective, tend to find that savvy investors create separate entities for each venture they participate in to maximize asset protection. However, something to take into account is also the fact conventional loans do not allow you to borrow with an entity. DSCR loans again, on the other hand, do, and those loans do not show up on your personal credit report when borrowing with an LLC, and thus, do not affect your finance ability going forwards.

Hope some of these tips help :)

How to finance multiple properties?

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