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Posts: 2
Reply with quote  #1 

Hello everyone,

I'm completely new to the rental property business and am planning on buying my first rental property, hopefully this summer.  Aside from having lived in rental properties for the last ten years or so (before and during graduate school), I've read books, talked to experts,  ran the numbers, etc., and I'm as convinced as ever that this would be a very good move for me.

However, the one thing that I'm still a bit in the dark about is financing.  No, I don't mean the very basics.  I'm actually a math professor who's taught finance math in the past, so the book keeping, after I've gained possession of the property, is no mystery to me, and I have plenty of resources with which to learn about that.  What I mean is, actually getting the financing for the property; that is, convincing a bank, at decent terms, to lend me money.

I've been in contact with a loan officer at Citibank (I'm going with them because a relative of mine works there and I'll get a sizeable discount on closing costs), and here's what I've learned.  Firstly, they flat out refused to lend me money on a purely investment property as a first time home buyer, so I'll have to actually live there once I buy it, which I have no problem with (I'm living in an apartment right now anyway).  Secondly, I'll be going with an FHA loan, since, even if I do live at the property, their traditional loan requires 25% down, and I just don't have that on me (I verified that the FHA would still back the loan, with 3.5% down, provided that I have verified occupancy of the property for at least a year).  And so, that's what I know: I can get an FHA loan for the property, I have to live at the property for at least a year, and my financial situation will drastically improve as soon as I do, both in terms of equity and immediate cashflow.

My long term goal is to buy and operate several rental properties.  As a single guy,  it's actually more important to me to get some more rental properties, along with the financial security it brings, than to buy my own home.  So, here's my question:

What happens after my first property?  Specifically:

1)  At what point, after having purchased my first property (which would technically be a primary residence), and successfully managed it, will a typical bank consider financing additional properties?

2)  At what terms would they consider doing so?  Can I expect a 25% down payment for all of my subsequent purchases?  Are interest rates different for purely rental properties?

3)  Would it be even remotely possible to get an FHA loan for my next property?  That is, suppose I agree to live at my next property for the requisite year as well, thus converting my first property into a purely rental property.  Would the FHA go along with this?

4)  Will banks ever consider financing more than one property (more or less, say within a couple months) simultaneously?


My reason for asking this is that I know of people, in their early 30's,who own many rental properties.  And I'm trying to figure out how I might get the kind of generous financing that they must have gotten in order to purchase that many rental properties in a relatively short time span. 

Don't get me wrong, I'm not trying to jump into a multi-million dollar financing agreement tomorrow, or ever necessarily.  If I never had the chance to own another rental property, I'd probably still make the deal for my first one.  But for long term planning, the whole financing thing is still a "black box" for me.

Any and all advice would be greatly appreciated.


Posts: 51
Reply with quote  #2 
Good luck on buying your first rental property.  Are you familiar with all the legal requirements in your state (and federally)?  Definitely read your state's landlord/tenant laws, and be familiar with the typical forms and processes involved with being a landlord.  Hopefully you are in a landlord-friendly state!

To answer your questions:

1) A lender may want to see a tax return since you bought your property before they will lend to you for a second property.  You can discuss this with your Citibank guy or with a local mortgage broker (who has access to many lenders).  Talk to a few to see what your options are and what lenders require.

2) If you buy your second property with the intent of moving into it as your new primary residence (at which point you'll move out of your first rental, which you said would need to be at least a year after purchase), you can likely buy it with the same small down payment like with your first property.  You have a great opportunity to buy several multi-family properties this way because of you don't currently own any property.  You can buy a multi-family and live in one unit with just a small down payment, then save up and buy another one with another small down payment (and move into that one).  Lenders allow smaller down payments if it's owner occupied vs an investment.  If you don't mind moving every year or so, you can acquire several properties with very small down payments for each (be careful that you don't overextend yourself, keep some cushion and emergency money).

If you buy your second property as an investment property instead of owner occupied, you will likely have to put 20% to 25% down, and the interest rate will be a little higher than an owner occupied purchase (I think about 0.5% to 1.0%, but talk to some mortgage brokers to see).

3) I don't know if FHA will do that or not, since I have never done FHA and am not familiar with it.  You could talk to a mortgage broker to see if FHA will do it.  Conventional mortgages will do it, but you may have to do mortgage insurance if you do a small down payment for the second property.

4) I don't see why lenders wouldn't do multiple loans within a short period of time if you have the income/credit/etc. to demonstrate that you qualify for multiple loans.  Again, you can talk to mortgage brokers to see what might be available to you.

My husband and I have been buying rental properties throughout our 20s (I'm 29, he's 30).  We own our house, 2 multi-families, and are in escrow on another multi-family right now.  We bought the rentals as non-owner occupied, so we had to put 25% down for each, but we have been sacrificing a lot during our 20s to be able to invest heavily.

Hope that helps!
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