Financing Multifamily (1-4 units) w/o Having Money Saved & No Job

[Aerry Parker]

Hello, my dream is to get into investing in short term rentals and I would love to start in Nashville, TN. I am wondering if anyone knows the likelihood of obtaining a mortgage for a multifamily property without currently having a job or much money saved for a down payment? I know that for multi families, it is possible to utilize 75% of the anticipated rents for the property as part of the income consideration for financing; however, does this rule still apply w/o currently having stable income from a primary job? ... Asking for a friend ;)

[Randall Alan]

Quote from @Aerry Parker:

Hello, my dream is to get into investing in short term rentals and I would love to start in Nashville, TN. I am wondering if anyone knows the likelihood of obtaining a mortgage for a multifamily property without currently having a job or much money saved for a down payment? I know that for multi families, it is possible to utilize 75% of the anticipated rents for the property as part of the income consideration for financing; however, does this rule still apply w/o currently having stable income from a primary job? ... Asking for a friend ;)

 In short .  It’s not likely.  Banks / lenders want to work with people who are most likely to be successful  - and the lack of money is the first indicator of weakness.  

What if you can’t rent a unit?  What if a renter quits paying rent and it takes 2 months to evict them?   What if you have a fire in a unit?  What if 2 AC units go out in the same month and it takes $10,000 to fix it?  The banks look for you to have reserves to be able to cover unexpected situations so that they still get paid.  

One of the big things they look at is your debt to income ratio.  In general they are looking for you to have about 20% - 30% more income than debt / monthly expenses.  So if they let you count 75% of your rents toward income - you still need more than the income from your property to qualify for a loan.  Usually they want 2 years worth of track record on the rentals you want to count as income.   They won’t just let you say “I’m positive I’ll make money”.  Plus on short term rentals you are relying on an occupancy rate that can vary.  Like - rentals in the winter are probably lower than the fall.  

On top of that, they want cash reserves to cover those unexpected situations.   We’ve had a fire in a unit.  Had to replace multiple roofs, septic systems, AC units.  Banks still want you to make your payments even when those things happen. 

On average you will probably net $200-300 per unit per month (when occupied) on a long term rental. Short term rentals are not my market segment - but it doesn’t change the basic equation.  Even a hot water heater going out will cut your $1200 in profit on a quad-plex in half for that month - and that is one of the cheaper fixes needed.

Ask yourself this - what if “Covid 23” comes along and no one is traveling again and there are no renters for your short term rentals?”  5 years ago we would have thought that a crazy idea.  Not anymore!  

There are real reasons banks only want to lend to financially stable people.  You need to get your own life in order before you can leverage real estate to get further ahead.   

You also  don’t want to be in a situation where you are a landlord and you can’t maintain your properties.  It’s a bad recipe!

Wish you the best in life!  Start with getting a job.  Getting your personal financial situation under control (read: making more money than you are spending), and then you will be a much better risk for the lenders.

Your best first real estate move should be to house hack a duplex.  You live in one side and the tenant on the other side pays the entire mortgage.  This allows you to save the $1,000 a month you might spend on rent toward building up your next down payment.  You can also look to family / relatives to help you move faster.  Maybe they help you buy it?

Hope some of this helps!

Randy