Financing new rental property

11 Replies

Hi everyone,

I am looking to start a real estate co and have some questions! If you could help me out that would mean a lot.

How many properties do you manage?

As a business do you value property appreciation or monthly rent intake more?

When you acquired your first few properties, how did you finance them?

What issues/difficulties did you run into when trying to finance your properties?

How do you finance your new acquisitions/projects now?

Thanks so much

Hi everyone,

I am looking to start a real estate co and have some questions! If you could help me out that would mean a lot.

How many properties do you manage?

  • I don't self manage. Always have a professional property management company manage your assets.

As a business do you value property appreciation or monthly rent intake more?

  • Starting out, cash flow. Only cash flow will help you feed your family. It's pretty hard to tap into appreciation if you are in a financial hardship. Banks won't refinance if you just lost your job and only have one rental property that doesn't even cash flow.

When you acquired your first few properties, how did you finance them?

  • I paid cash and refinanced out using conventional financing products. However, looking back I would have been able to grow quicker if I would have used my cash for down payments with regular financing buying turnkey properties.

What issues/difficulties did you run into when trying to finance your properties?

  • The seasoning period held me up when it came to refinancing my assets. As I said in my last comment, I would have been able to grow quicker if I would have used my money for down payments on turnkey properties. 

@Michael B. Thanks for your input! Question for you.... so would you say you attempted the BRRR strategy and feel as though turnkey is a better option for you personally or better in your opinion all together due to seasoning period? If so; is it because the seasoning period held up a majority of your cash therefore not allowing you to acquire more properties quicker?

@Shaun Draughn Let's say you have $100k to invest. In the market where I buy, you will be able to get about 2 properties + rehab for that $100k if you pay cash. After you are done fixing those two properties you will have to wait 6 months to 12 months to refinance those two houses until you can get your money back through a refi.

Even delayed financing exception won't help you if you buy fixer uppers because you will only be able to recover your initial purchase cost and not the rehab costs. 

If you buy already rented turnkey properties from a turnkey provider you will be able to buy roughly 10 properties (in the market where I invest) that will cash flow between $400 and $500 per month using conventional financing with down payment. You can achieve that amount of properties easily within one year! After you bought 10 of these properties and maxed out your conventional financing capabilities your monthly income will be $4000 - $5000 Dollars per month from your rental properties alone. That's a nice raise that will help you feed your kids if you lose your job for example.  This will also open way more possibilities for you for future deals and you can get creative with this extra monthly "play money."

On the other hand, if you follow the BRRR strategy, then it might take you years to get to 10 properties. Now the question remains, is it worth to wait years to save a few bucks one each project or are you looking to increase your monthly income quickly, add your monthly rental income to your W2 income and make more deals that way?

The BRRR strategy is certainly good but it's not fast. It's one of the many tools of a savy real estate investor. However, being an INVESTOR, also means you use your tools wisely and look for the fastest and easiest way to make money while eliminating the downside (whatever it may be). Time itself comes with its own upside and downside. Upside: You might get a raise. Downside: You might lose your job in one year and wish you had an extra $5000 per month from rental income. If you lose your job, it will be hard to find a bank that refinances your two properties where you tried to apply the BRRR strategy. 

@Connor McColl

Welcome to the site. Below are the Q & A's.

How many properties do you manage?

1,000+

As a business do you value property appreciation or monthly rent intake more?

Both are cool. It's not an either or. Nothing is wrong with diversification in an investment portfolio.

When you acquired your first few properties, how did you finance them?

Traditional bank loans. It's the best financing on the planet. 30 years, low fixed rate, tax deductible. Cannot be beat.

What issues/difficulties did you run into when trying to finance your properties?

There is a limit two how many of those great 30 year loans you can get. It's 10.

How do you finance your new acquisitions/projects now?

After you exhaust your 10 you can move onto commercial real estate and utilize commercial financing. So long as you have the funds for the down payment the bank will essentially loan you $1 for every $1.20 that the property brings in. This is called Debt Service Coverage Ratio (DSCR)

@Connor McColl I'm on rental property number 3.  I'm not sure what price range you're looking at in your area but I've found that it can also be difficult to get a 30 year mortgage on a property where the loan is going to be less than $60k.  On my last property I had to find a smaller bank to give me a commercial loan.  20 year amortization with the first 5 years fixed.  One of the benefits to this is they offered 90% financing.

Originally posted by @Michael B. :

@Shaun Draughn Let's say you have $100k to invest. ....................If you buy already rented turnkey properties from a turnkey provider you will be able to buy roughly 10 properties (in the market where I invest) that will cash flow between $400 and $500 per month using conventional financing with down payment. You can achieve that amount of properties easily within one year! After you bought 10 of these properties and maxed out your conventional financing capabilities your monthly income will be $4000 - $5000 Dollars per month from your rental properties alone. That's a nice raise that will help you feed your kids if you lose your job for example.  This will also open way more possibilities for you for future deals and you can get creative with this extra monthly "play money."

On the other hand, if you follow the BRRR strategy, then it might take you years to get to 10 properties. Now the question remains, is it worth to wait years to save a few bucks one each project or are you looking to increase your monthly income quickly, add your monthly rental income to your W2 income and make more deals that way?

The BRRR strategy is certainly good but it's not fast. It's one of the many tools of a savy real estate investor. However, being an INVESTOR, also means you use your tools wisely and look for the fastest and easiest way to make money while eliminating the downside (whatever it may be). Time itself comes with its own upside and downside. Upside: You might get a raise. Downside: You might lose your job in one year and wish you had an extra $5000 per month from rental income. If you lose your job, it will be hard to find a bank that refinances your two properties where you tried to apply the BRRR strategy. 

 What market are you in? what is the average purchase price? How are you able  to clear 400-500 in cash flow? What are the average rents?

Something I didn't notice anyone talking about was actually getting a good/great deal. In today's market that takes CASH. Like suitcases full of cash because in my market conventional financing loses every time.