Best Loan Options for small Rental

[Kyle Smith]

Hey everyone. What do you all think is the best strategy for buying an inexpensive house ($50,000 to $70,000) that you plan to rent out? I want to use as little of my money as possible. I am currently living at my home using an FHA loan so I am not looking to do that again.

[Erik Estrada]

It would be tough finding a lender to do a loan for $50,000 and it might come at a bigger cost since there is no real gain for them to issue a loan of that size. You can probably do a cash out on your primary but there is limits to this since it is an FHA loan, (maintaining 20% equity, living in it for over 12 months, etc...). The minimum loan amount for most asset based lenders is $75,000 and the lowest I have seen is 15% down.

[Andrew Garcia]

Hi @Kyle Smith, as Erik said, DSCR is likely out of the question since most have minimum loan amounts of 75-100k.

You could use conventional financing but if your debt-to-income ratio is tight, it might be tough.

You could look into private lending but rates are typically higher and terms are shorter.

In short, if you can qualify for conventional, go that route. If not, private lending is likely your best option. 

Alternatively, you can buy more expensive properties while getting the same yield by looking into 2-4 unit properties, looking in nicer areas, etc.

Hope this helps! Let me know if I can be of any assistance.

[Jonathan Taylor]

@Kyle Smith for smaller loan amounts, start with local lenders who know your market better. If there is a credit union you have a relationship with or a local bank who has main roots in and around your market, these would be the best places to start.