When you bought your first rental...

Question

was it difficult getting the loan if someone wasn't already living in the unit?

I'm brand new at this so please excuse the newbie questions.

I am looking at purchasing my first rental soon.  Still looking at properties.  I had a friend purchase a 5 unit apartment building and had no issues from her lender due to 3 of the 5 units were occupied.  It had a positive cash flow coming in already.

Paul Timmins · Answer

Bryan

Commercial 5+ units are a different animal. The performance of the property is the key. The fact that it was cashflowing helped.

If <5 units my first was a duplex living in 1 renting the other out they took half the anticipated rent along with my income to qualify.

Don't forget to check HUD homes owner occupant gets first crack.

Paul

Aaron Montague · Answer

@Bryan Wilson

Purchasing a SFH using conventional bank based financing will require that you are able to cover the mortgage payment WITHOUT getting any income from the tenants.  It will take 2 years of tax returns before the bank will let you use the rental proceeds to boost your yearly income.  The bank will lend on the value of the house against your income, credit score and little else.  The current, or future, tenant's monthly payment will do you no good.

Like everything, there may be a few banks out there that will allow you to use the tenant's payments immediately, but I am unaware of any at this point.

@Albert Bui - Did I get that 98%+ right?

To your HUD question:

HUD Homes <-- if you want to live in a HUD home, you get preference over investors, even those paying cash.  Same applies for 20 days at homepath.com.

Bryan Wilson · Answer

thanks for the replies.

I am wanting to purchase single family homes.  I live in Des Moines, and my family is down in Missouri.  There are a lot of houses in my price range and I have the family willing to keep an eye on the places.

I've seen this quote before, "HUD homes owner occupant gets first crack"  what is that if I may ask?  Newbie question.  :)

Michele Fischer · Answer

We financed a duplex where only one side was occupied no problem.  But, we paid cash for another empty duplex and had trouble getting insurance for that one since it was uninhabitable until we did the rehab.  Had to get more expensive policy with a different provider, then shopped it lower the following year.

Chris Adams · Answer

Paul is absolutely correct. 1-4 family rentals are looked at much differently that 5+ unit buildings.

So the first question I need you to answer is do you plan on buying a single family , a small multi 2-4 units or a 5 + unit.

The answer will be different based on what you tell us. And even then that answer can vary from bank to bank.

If it is going to be a small multi, will you live in any of the units yourself? This will help a lot with financing if you do.