financing rentals

11 Replies

I have a few properties and now the bank wants 20 percent down and 6 months of payments per property in the bank to cover my payment just in case all of them go vacant at the same time for 6 months. How do they expect anyone to get a loan? What are you doing to finance your rentals? I am not interested in house hacking or the BRRR strategy.

Buying with seller-financing from tired landlords.  No shady land contracts, though.  Usually paying 6% for long terms (15+ yrs) with about 10% down.  No large reserve requirements!

Find a market with reasonable price to rental ratios. Buy your first property all cash. You will make mistakes. Learn from them. Make it work. Soon you will have the capital to buy your second property. Rinse and repeat. Requires discipline and focus, but tried and true method that works over time and market cycles.

Originally posted by @Chip Chronister:

I have a few properties and now the bank wants 20 percent down and 6 months of payments per property in the bank to cover my payment just in case all of them go vacant at the same time for 6 months. How do they expect anyone to get a loan? What are you doing to finance your rentals? I am not interested in house hacking or the BRRR strategy.

 I'd say you have the wrong bank! Sounds like you're walking into the mortgage department, not the commercial side where they will hold the note.

I don't know what a "few" properties means, 3 or 12 or 26? Having 6 months reserves for 3 is prudent, having 12 or 26 is very poor money management from a business point of view. 

No commercial lender is going loan you up to your maximum lending capacity, at least not a good lender. You need room to operate and enough space to obtain other short term financing available to weather any storm. 

Are all your eggs in one basket? I know a guy who lost 6 tenants within a month, there were sewer issues and they kept turning off the sewer over several days, tenants were on a month to month and they bailed on him! 

In my area, we have tornado's, insurance proceeds don't make mortgage payments forever, damage can take months to repair, no income, and if there are two walls standing most companies don't want to total the place nor are loss proceeds, if they total the place are guaranteed to payoff a mortgage. 

Lenders will look at the concentration of your properties in a commercial loan as well, but the reserve requirement tapers off because if you have experience they know the loss of all rents at the same time is unlikely. Not so true with secondary market loans but each lender will follow the underwriting requirements and add overlays to ensure they never have to buy a loan back. 

Seller financing is a great option, find a tired landlord, they all get tired at some point. Even if your deal is close to what it would cost them in management fees, many would rather not clean toilets and still pick up a monthly check. They don't always have to be that tired! :)     

@Chip Chronister

In many situations 6 months reserves is required. 

  • The subject property is always 6 months
  • 2-4 unit investment properties are always 6 months
  • If you have 5-10 mortgaged investment properties, the required cash reserves is always 6 months on all properties.
  • If you have 1-4 mortgaged properties, including the subject property, than a SFR only require 2 months reserves. Once you get up to 5 mortgaged properties it will be 6 months then.
  1. If you have 1-4 mortgaged properties, including subject, than you can do as little as 15% down on a 1 unit investment only, but will be required to pay mortgage insurance, with less than 20% down.

@Faisal Sami

Has some good suggestions with low priced properties, as long as you have a great team in place. 

@Crystal H. Hello. 

@Tim Lindstrom Thank you for the mention! 

Originally posted by @Chip Chronister :

I have a few properties and now the bank wants 20 percent down and 6 months of payments per property in the bank to cover my payment just in case all of them go vacant at the same time for 6 months. How do they expect anyone to get a loan? What are you doing to finance your rentals? I am not interested in house hacking or the BRRR strategy.

 The banks in my neck of the woods typically want 25% down with 6 months of reserves for investment properties, so I guess it's all relative.  I wish I had this problem.

Good advice given nonetheless in the posts above.

@Chip Chronister  I ran into the same situation on my 3-family. They required 6 months reserve in my account. Luckily I had a friend gift me the money (as a loan), which the lender had no problems with. From what I was told, they only need that money in the account upon closing. They will not be going into your bank account and checking to make sure its there, so if you have access to someone willing to lend for a short time, that should suffice. However, having a reserve is extremely important, because these vacancies or other things can happen. Check with your lender about the exact terms. It may be different in your state and would not want to get you into trouble. Good luck to you.

since my post I am trying to close in my new personal house that I built let me say it has been going on since august and I did move into it in July, I have a great credit score and no issues they are just looking at 4 other loans I have and now they are telling me that there is a formula that makes my stuff look like it is in the negative even though I have a good positive cash flow, they tell me it is with the new banking rules example the guy at the bank says he has a rental and it cash flows every month but it shows that it looses 4k every year? but they are right, they are letting me use my 401k but it is only the amount that you can borrow against so that depends on how much is in it and how much of a percent they will let you borrow so what the heck lets just say I get in a pinch even though that money is there what if I just decide not to use it and also what doesnt make sense is that they are so hard on an investor but they make questionable loans all the time to SF home owners all the time. Just my 2 cents sorry for the rant.