Advice Needed - Financing Options for Second Property

Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes

2mo

Have you verified this lending option is legit? I would read all the fine print and understand what fees, loan terms, pre payment, etc. I would focus on getting your ADU up and going. Give it a few months to make sure there's no issues. Typically with private money it's best use is for shorter time periods (sub 1 year) and where you can pay it back then repeat.

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Christian Wamsley

Investor · Augusta · Member since 2024 · 28 posts · 23 votes

2mo

Jaclyn — I think Caleb gave you good advice here.

Before deciding whether to recast, buy another property, or split the funds, I’d first slow down and understand exactly what this “private financing” really is.

At 3%, I’d want to know:

Is it fixed or adjustable?
What is the term?
Is there a balloon payment?
Is it secured by your current property or the next property?
Are there points, fees, or prepayment penalties?
What is the monthly payment?
What happens if you need more time than expected?

Private money can be a great tool, but it depends heavily on the structure. A low rate by itself does not automatically make it low-risk.

Since you are brand new and already have an ADU tenant plus a basement STR strategy starting, I'd personally want to see those stabilize first. Give yourself a few months to understand real cash flow, maintenance, tenant management, vacancy, and your comfort level as a landlord.

Then you can decide if the next move supports your long-term goal.

One other thought: because your DTI is tight, it may be worth learning about DSCR or other investor-focused loan options down the road. Those are more property-income driven, but the numbers still have to make sense.

For now, I would not rush just because capital is available. I’d first ask:
Does this money help me reduce risk, increase options, or accidentally create pressure I’m not ready for yet?

That answer should guide the next step.

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Tom S.

Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes

2mo

@Jaclyn King All great advice above.

Just adding, the 3% rate up to $300k just doesn't seem real. I don't know why any private lender would lend at that rate. Government backed mortgages are in the 6-7% range.

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Irv ArreolaPro Member

Lender · Los Angeles CA · Member since 2026 · 25 posts · 3 votes

2mo

Jaclyn, the piece I'd focus on is your DTI comment. You're right that conventional is basically off the table while you're paying spousal support, but that only applies to conventional. DSCR loans qualify off the property, the rent versus the payment, not your personal DTI. So the 6 year wait you're bracing for doesn't apply if you go the investor loan route on the next one, which really changes the buy sooner versus later math.

On the 3% private money, I'd echo Caleb and Tom. A rate that far under market on 300k is unusual, so get it in writing first. What actually matters is the term, whether there's a balloon, the lien position, and any points or prepay penalty. A cheap rate with a 12 month balloon is a very different animal than one you can sit in for years.

Between your options, recasting just buys a lower payment but parks 300k of equity that isn't earning much. Using it as a down payment on a rental that cash flows puts it to work, and with DSCR you're not fighting your DTI to do it. The counterweight is your own landlording point, so letting the ADU and STR season a few months first is reasonable, and it gives you real numbers to underwrite the next deal.

You also don't have to leave Denver. DSCR exists everywhere, the catch is Denver deals are tight on cash flow so the DSCR ratio is usually what makes or breaks approval. Happy to walk through what that ratio would need to look like on a specific property if you want to sanity check one.

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Mike GrudzienPro Member

Lender · Eugene, OR · Member since 2019 · 2k+ posts · 1k+ votes

2mo

Yes, private money at 3% ??? Not right....

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Vijay FriedmanBusiness Member

Miami, FL · Member since 2026 · 766 posts · 122 votes

2mo

Quote from @Jaclyn King:

I'm a newbie and could use some advice on future planning and financing. When I say I am a newbie, I just bought a home to occupy that has an ADU and I've just secured my tenant who has yet to move in. This is all new to me and I have barely started on my investment journey.

I recently was offered private financing up to $300,000. The private financing would be a 3% interest rate whereas my current interest rate is 5.6%. I see a few options for planning my second investment, but I'm not sure what the right move is.

1. I could use the $300,000 to recast my current mortgage which would allow me to increase my personal monthly savings towards a down payment of a second rental. It would probably take me 3-4 years to save enough for a second investment and I could then do an owner occupied home (having reached my 12 month occupancy requirement).

2. I could use the $300,000 as a strong down payment on a second investment property, scaling quicker than I expected. I don't know how landlording will work and if I'm cut out for landlording. I trust I can figure it out, but having two tenants is a big leap for a newbie.

3. I could split between the recast and purchasing a second property - still getting into my second property quicker than originally expected.

A few nuances to my situation.

1. I just got divorced and pay spousal support so my DTI is quite high. It'll be challenging for me to qualify for a second conventional loan until I'm done paying SS (6 years from now).

2. In my current owner occupied home, I have the ADU for LTR and I also have the basement converted for STRs (private suite, not separate entrance), which is a very helpful mix of strategies. It's easy for me to maintain and I think it'd be tough to find another setup like this.

3. I live in the Denver metro area which is expensive. While I could find another market, it makes me very nervous to do this for my second investment. I have a strong network of agents, lenders and contractors and it intimidates me to risk having to find a new network.

I'm probably being overly cautious with the leap - just would like additional ideas, considerations or experiences. Thanks!

@Jaclyn King
Jaclyn, it sounds like you're thinking through the long-term strategy instead of just trying to buy as quickly as possible, which is a good approach. Since you already have rental income from the ADU and STR, I'd focus on making sure any second purchase is sustainable alongside your current obligations. As your plans become more defined, it may also be worth comparing different financing options rather than committing to one path too early. Best of luck on the next step!

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Drew SygitBusiness Member

Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes

2mo

Quote from @Jaclyn King:

I'm a newbie and could use some advice on future planning and financing. When I say I am a newbie, I just bought a home to occupy that has an ADU and I've just secured my tenant who has yet to move in. This is all new to me and I have barely started on my investment journey.

I recently was offered private financing up to $300,000. The private financing would be a 3% interest rate whereas my current interest rate is 5.6%. I see a few options for planning my second investment, but I'm not sure what the right move is.

1. I could use the $300,000 to recast my current mortgage which would allow me to increase my personal monthly savings towards a down payment of a second rental. It would probably take me 3-4 years to save enough for a second investment and I could then do an owner occupied home (having reached my 12 month occupancy requirement).

2. I could use the $300,000 as a strong down payment on a second investment property, scaling quicker than I expected. I don't know how landlording will work and if I'm cut out for landlording. I trust I can figure it out, but having two tenants is a big leap for a newbie.

3. I could split between the recast and purchasing a second property - still getting into my second property quicker than originally expected.

A few nuances to my situation.

1. I just got divorced and pay spousal support so my DTI is quite high. It'll be challenging for me to qualify for a second conventional loan until I'm done paying SS (6 years from now).

2. In my current owner occupied home, I have the ADU for LTR and I also have the basement converted for STRs (private suite, not separate entrance), which is a very helpful mix of strategies. It's easy for me to maintain and I think it'd be tough to find another setup like this.

3. I live in the Denver metro area which is expensive. While I could find another market, it makes me very nervous to do this for my second investment. I have a strong network of agents, lenders and contractors and it intimidates me to risk having to find a new network.

I'm probably being overly cautious with the leap - just would like additional ideas, considerations or experiences. Thanks!

Going to assume the 3% private financing is from a family member or friend, NOT an actual lender.

Why would you recast your current mortgage?
- Investing is all about leveraging your capital with lender financing, while having someone else pay the loan back (tenants in real estate investing).

Since you're comfortable with your current STR and LTR setup, recommend finding something that only varies slightly from it.

As others have mentioned, get pre-approved for a DSCR loan. They only require 20% down, but doing that makes it VERY difficult to generate positive cashflow.

So, you may want to consider 30-35% down, or more, so you have positive monthly cashflow.

Why didn't you STR the ADU for higher income?

You should also familiarize yourself with MTR - mid-term rentals. Use FurnishedFinders website.

Typical definitions:
LTR - Long-Term Rental of usually 12+ months, but at least 6 months
MTR- Mid-Term Rental of at least 30 days, several cities & many HOAs require this. RECOMMEND a lease and screen applicants, to avoid squatting!
STR - Short-Term Rental of less than 30 days.

Find another property with an ADU or legally rentable basement.
You could do an LTR for income stability and MTR/STR the basement or ADU for additional income.

If you get really successful at MTR/STR you could convert all your units to this for more cashflow.

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Nicholas L.Pro Member

Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes

2mo

@Jaclyn King

hi. i share the skepticism on the $300K of private money at 3%. that doesn't make any sense.

in any event, would i use it to recast a primary mortgage? or, put it down as a down payment? no to both. down payments can't be borrowed on an LTR, at 3% or 10%, or the LTR will lose money. and this is true in both Cleveland and Colorado.

there are so many folks on BP using HELOC money, for example, as down payments, and pretending it's cash and there is no financing charge. it's not cash and your 3% money isn't cash either.

one thing to note is that non value add returns in real estate on LTRs are EXTREMELY LOW right now. i cannot overemphasize this. BP makes you want to... do deals! buy properties! own doors! but it just doesn't make sense to do that if the return is going to be 0. that's not why we're here (unless we're bored HNWIs with nothing else to do. and i certainly am not that.)

your best bet is probably: do nothing. stabilize your house + ADU. save. be patient.

i know that's not what you want to hear.

i hope this helps. i would be happy to dialogue further or connect. i have nothing to sell and as I hope is evident from my post i am not in the "go for it" crowd. in fact I'm probably in the "don't go for it" crowd.

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Ray WilliamsBusiness Member

Lender · Denver, CO · Member since 2017 · 159 posts · 69 votes

2mo

I'm also in Denver, it is expensive.

That 3% number is the part I'd slow down on before anything else. Institutional money isn't lending at 3% right now with rates where they are if this is real, it's probably a short-term intro rate, an adjustable structure, or has a balloon or points buried in it that make the effective cost much higher than advertised. Get the actual terms in writing before you build a plan around it.

On the DTI problem: this is exactly the situation DSCR loans exist for. They qualify off the subject property's rental income instead of your personal debt-to-income, so the spousal support obligation that's blocking a conventional loan for the next several years doesn't come into play the same way. Your current setup ADU on a long-term lease plus a documented STR stream from the basement suite is actually a strong, provable income history for that kind of underwriting, which is worth more than most first-time landlords have at this stage.

Rather than picking recast-vs-buy in the abstract, I'd run both scenarios against an actual DSCR ratio for a couple of real target properties. That tells you whether property #2 pencils on its own income today, or whether you're right to wait and build reserves first. I work in mortgage lending and see this exact fork in the road often happy to compare notes on how the math looks for your market if it's useful.

I can tell you there are still great opps in the foothills for STRs if you are attracted to that model for your next investment as well.

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Malik Shalmiyev

Member since 2026 · 8 posts · 0 votes

2mo

You're not being overly cautious — you're thinking about this the right way. A couple of things to add on top of the DSCR points others already made:

On qualifying: your instinct about the spousal support is correct for conventional, but DSCR really does sidestep it since it underwrites the property's income, not your DTI. Where it gets nuanced for you specifically — your basement STR shares the entrance with your primary, so on the next property a DSCR appraiser will likely value income off legally separate, rentable units (an ADU or a true separate basement suite) rather than a shared-entry setup. If you want to repeat your current mixed-strategy magic, look for a property where each income stream is its own permitted unit. That's what makes the numbers provable to a lender.

On the 3% money: I'll echo everyone else — get the full terms in writing before you build a plan around it. Rate is only one variable; the term, lien position, balloon, and prepay penalty decide whether it's actually cheap.

On recast vs. deploy: recasting lowers your payment but parks $300k of equity earning almost nothing. Using it as a down payment only makes sense if the next deal cash flows after debt service — and in a tight market like Denver, that's the whole ballgame. I'd stabilize the ADU and STR for a few months first so you have real numbers, then underwrite property #2 against an actual DSCR ratio before deciding. Let the deal tell you whether to move now or wait.

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James Driscoll

Banker · MA · Member since 2026 · 120 posts · 32 votes

1mo

The DTI issue is the thing that should drive this whole decision, so I'd start there before worrying about which option feels more exciting.

If you can't qualify for a conventional loan on a second property for 6 years because of spousal support, Option 1 (the recast) deserves more credit than you're giving it. Recasting at 3% private money into your existing mortgage doesn't just lower your payment, it frees up monthly cash flow that actually helps your DTI picture over time. Saving toward a second purchase while your rental income from the ADU seasons on your tax returns puts you in a much stronger borrowing position when you eventually do want to scale. Two to three years of documented rental income changes what lenders will do for you.

That said, there are loan structures designed for exactly your situation. DSCR loans (debt service coverage ratio) qualify the borrower based on the property's rental income rather than personal income, so your spousal support obligation doesn't torpedo you the same way it would on a conventional loan. If a second property in Denver can generate enough rent to cover its own debt service, a DSCR loan might let you scale sooner without fighting the DTI ceiling. Worth modeling before you assume conventional is your only path.

Option 3 (split) sounds appealing but it's worth being honest about: splitting the $300K means less impact on the recast and a thinner down payment on the second property, which may push you into worse loan terms on both ends. Sometimes splitting just means you get two mediocre outcomes instead of one good one.

On the landlording anxiety: one tenant in an ADU is a pretty low-stakes way to learn. If that goes reasonably well over 12 months, you'll have a much better read on whether a second property with another tenant is manageable. There's no shame in letting that experience inform the decision.

After 31 years in the mortgage business I've seen a lot of investors try to scale before their income documentation and DTI were ready, and it creates real problems at the closing table. The private money offer is genuinely good leverage, but the sequencing matters as much as the dollar amount.

Jim Driscoll

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Erik EstradaBusiness Member

Lender · Member since 2022 · 6k+ posts · 1k+ votes

7h

Did you end up financing this property with the lender offering 3% interest after all? Curious to know, based on all the feedback..

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Advice Needed - Financing Options for Second Property

Advice Needed - Financing Options for Second Property

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