Building a property portfolio using owner occupied financing

[Dean Klein]

Hi All,

I've currently got 4 properties including my primary residence. I would like to acquire the next 3-4 properties using owner occupied financing where I will live at the property for 1 year, then convert it into a full rental, and buy another property to live in, and repeat that a few times.  The properties will all be in the same city though. Will banks give push back for doing this? Has anybody else built or added to their portfolio's using this strategy? I'm wanting to do it for the 15% vs 25% down payment and also the better interest rates. All of my properties will be duplexes. Any insight is appreciated!

Dean

[Mike Dymski]

Terms on investor loans are not much different than owner occupant...20% down vs 25% and maybe 50 basis points difference in the rate. Moving every year in and out of investment grade properties and neighborhoods is a lot of gymnastics for this small difference relative to other profit aspects in REI.

[Orkeem Davis]

Awesome!  I enjoyed hearing about your progression.  Sounds like fun!  I have no suggestions, but I am intrigued to hear other investors' perspective.  Good luck!

[Bridget Y.]

I can see there being some push back. I have hear from others that your lender needs to write a story for why you want to buy a new place and will want to see some life changes or reasons for why you want to move so often. Like you have a growing family and you need more space, you want to upgrade your home, or move to a nicer area. 

[Dean Klein]

@Bridget Y. That's what I was thinking but if I completed the 1 year of owner occupancy, I would think that I would be free to obtain another one if I wanted to move, regardless of the reason but that must not be how it works even though I'm putting down 15% and not using a special loan program where I'm putting super low down payments such as 3.5% or 5%.

[Orkeem Davis]

Ok, I have feedback. Since you have 4 properties, you are considered a real estate investor! Welcome to the club! As such, we generally pay 25% down to purchase investment properties or we use other low money down strategies (investment partners, HELOC, etc). I like your drive, but the bank will more than likely balk and say "no" due to the properties being the same town and you not coming to the table with 25% down. I suggest getting a home equity line or selling one of your properties as way to get access to more money. Both of those strategies if done properly will help you implement your plan of obtaining 3-4 more properties.

[Orkeem Davis]

Not advising you, just a suggestion.

[Bridget Y.]

@Dean Klein The product I am thinking of is a conventional loan with 5% down. Just curious, what kind of loan product are you thinking of using? 

[Dean Klein]

@Bridget Y. Just a conventional loan with 15% down for a duplex.

[Mike Dymski]

Terms on investor loans are not much different than owner occupant...20% down vs 25% and maybe 50 basis points difference in the rate. Moving every year in and out of investment grade properties and neighborhoods is a lot of gymnastics for this small difference relative to other profit aspects in REI.