How do people typically finance their rental homes? I’ve owned a few rental homes but I’ve been doing 15 or 20 year commercial loans. It’s very hard to find a house priced well enough to cash flow with a 15 or 20 year loan. Is my financing my problem why I can’t create a better than break even cash flow?
Investor · NY · Member since 2020 · 57 posts · 44 votes
6y
I bought my house in my name... conventional 30 year with 25% down, non-owner occupied. After, I closed, I reached out to my title company and changed the deed to my LLC. The mortgage company knows because I made sure to tell them before I changed it..and I added my LLC to my insurance as an additional insurer. I'm in contract to purchase my 2nd rental property...it will be with a conventional 30 year loan and with 25% down again, and non-owner occupied and in my name....I will have the deed changed to my LLC after closing again too. My mortgage broker said that if I get the loan originally in my LLC's name that the interest rate will be higher...I don't want that.
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
6y
In this hot market, it can be hard, but not impossible to find good SFH rentals. I have only been able to find lenders that do 20 yr am, 5 year term commercial loans. My properties are all held in my LLC, and I wanted my LLC to be the borrower to begin establishing credit for the business.
In order to get into 30yr loans, property has to be titled in your name, and you are confirming in the mortgage docs that you are an owner-occupant for at least the first year.
@Evan Polaski Thanks. I’m in the same boat. Best lender deal I can find is the 20 year with 5 year balloon and then refinance. Living in the house the first year isn’t really an option. So that takes the 30 year commercial off the table?
Realtor · Dayton, OH · Member since 2017 · 49 posts · 55 votes
6y
@Brad Moore
My philosophy is to pay down the house you live in as quickly as possible since it's a liability and leverage for 30 years on rentals for increased cash flow.
Cash flow and cash reserves are most important to me. Leverage as long as possible at the lowest fixed rates possible.
Notice these are my philosophies. Everyone has different risk tolerances and goals. Learn what works for you and put it in action.
@Eric Mielke My philosophy is basically the same. Except I don’t want to dump any money into my personal residence really. I feel like putting money on it keeps me from buying other properties that can make me additional money.
So do you currently buy rentals on 30 year loans? If so, how? Do you live in them the first year? What type of loan?
Rental Property Investor · Carrollton, TX · Member since 2013 · 750 posts · 538 votes
6y
Great way to go is buy a wreck of a house at a discount with hard money, get it fixed up and then refi out into a 30-year Fannie Mae or Freddie Mac loan. You can do up to ten loans in your name that way.
Investor · NY · Member since 2020 · 57 posts · 44 votes
6y
I bought my house in my name... conventional 30 year with 25% down, non-owner occupied. After, I closed, I reached out to my title company and changed the deed to my LLC. The mortgage company knows because I made sure to tell them before I changed it..and I added my LLC to my insurance as an additional insurer. I'm in contract to purchase my 2nd rental property...it will be with a conventional 30 year loan and with 25% down again, and non-owner occupied and in my name....I will have the deed changed to my LLC after closing again too. My mortgage broker said that if I get the loan originally in my LLC's name that the interest rate will be higher...I don't want that.
Investor · NY · Member since 2020 · 57 posts · 44 votes
6y
Both houses were $135,000...so a $33,750 down payment on both. My spouse and I saved aggressively for 1 year for both down payments. We plan on owning at least 10 by the time that we retire from our full time jobs...and that will be in 8 years, we have 20 year government contract jobs.
@Brittany Rivera This is very helpful information. Thank you. This is a very appealing option. Any reason why the down payment is so high at 25% rather than the standard 20% for conventional loans?
Investor · NY · Member since 2020 · 57 posts · 44 votes
6y
The mortgage companies required it bc they know from the start that I’m not occupying the home, I only plan on renting them. Plus, I own my personal residence and live in it. If I wanted to put down less money, then I would have to say that I’m going to live in it, for whatever the required time is for that mortgage company and show proof of a lease for my current residence. I could lie...and have a family member fake a lease buuuuut, like I said I work for the government, soooo I don’t want to take that chance. Lol.
So, you can do that, if you want...just live in the property for required time as per the mortgage company, put a smaller down payment then 25% and then move out after that time frame, then lease it and change the deed to your company’s name. A lot of ppl do that but, I can’t... so I just live liKe a pauper for a year, and save, buy the next one so I can get to my future goals.
Investor · NY · Member since 2020 · 57 posts · 44 votes
6y
I also agree with the other members, get 30yr loans so that your payments are smaller, which shows the banks that for the next loan you have more money to be able to pay for it...if your payments are bigger/15yr loans, technically you have less income to pay for another loan.
Investor · Johns Creek, GA · Member since 2017 · 463 posts · 488 votes
6y
Try seller financing. All of the financing I got through seller-financing are 30-year amortization, with rate as low as 3%. I am also doing mobile home parks. SFH might be more difficult to get that kind of terms.
Danville. CA · Member since 2017 · 313 posts · 221 votes
6y
@Brad Moore 25% LTV 30 year fixed is the way to go imo. 4.5%-5% interest then move into LLC after closing. I have a great loan agent with Arvest bank if you'd like an intro.
Northwest Indiana · Member since 2019 · 47 posts · 16 votes
6y
@Brad Moore always 30 year. I’m all about cash flow. If the time comes one day where I have a ton of cash sitting around and don’t want to buy more properties-I can always just lay down chunks if I want. Because I intend to hold these LONG TERM I see no reason getting anything less than 30
Realtor · Reno, NV · Member since 2019 · 6 posts · 9 votes
6y
@Jingwen Dunford Are you getting mobile home parks with owner carry, and if so what terms are you getting, down pymnt,interest rate, length of loan, Cocr ect . Just average numbers would be great , thanks
Lender · Boulder, CO · Member since 2020 · 2 posts · 0 votes
6y
@Evan Polaski There are some great 30YR fixed options outside of Fannie and Freddie for rental properties. DSCR is used to qualify rather than DTI. Saves a headache on underwriting and decent rates.
Real Estate Agent · Oklahoma City, OK · Member since 2019 · 956 posts · 600 votes
6y
@Brad Moore I've seen hundreds of investors do 30 year conventional. They're leveraging as much as they can while lending is affordable and cash flowing!
@Evan Polaski I personally know a national lender with competitive rates that will do a 30 year conventional on an investment property in any state.
Rental Property Investor · Temecula, CA · Member since 2018 · 36 posts · 21 votes
6y
HI @Brad Moore. I have a small SFR portfolio; all properties are located in the midwest and all purchased between $108k - $118k. Every home I've financed 30 year conventional 20% down. I did not have to occupy the property for any period of time. If it's an investment property (in my experiences) the interest rate is a little higher so I usually buy it down. I have kept the properties in my own personal name. My mortgages have non-transfer clauses. All of my properties cash flow well and (luckily) I've had really great tenants. Good luck!