Rental Property Loans

[Blake Cory]

Hi everyone I'm beginning the process of building a rental portfolio. Most of the conventional lenders that I am talking with require at least 20 percent down and I can only have 10 mortgages against my social security number. When I traveled back to Ohio this summer I was talking to a real estate investor out there and he said that going to the commercial side of a bank you can purchase the property cash and refinance out of it immediately getting almost all your capital back and he has 40 properties in his portfolio. Can anyone advise me what's the best route to go especially beginning this portfolio. I'm located in California.

[Arthur Garcia]

Hi Blake,

I think I might be able to offer a few ideas for you. The first thing I should say is "it depends". Most lending institutions have different guidelines and overlays, you need to make sure you do you HW on the front end. I usually recommend people make a spreadsheet with 20 different lenders and call each of the institutions on the phone. After talking with all 20, you should have a very strong understanding of how the whole process works.

Here are few rules of thumb I share with a lot of newbie investors regarding conventional mortgages (depending on the lending institution):

first 4 loans: 20% down, 3-6 mo mortgage cash reserves per property, credit score above 630-650, 2 years of W2 income, debt to income (talk to lender about the percentages you need to qualify)

loans 5-10: 25-30% down, 6 mo mortgage cash reserves per property, credit score above 720, 2 years of w2 income debt to income (talk to lender about their percentages you nee to qualify)

My recommendation is very simple - get started. Put 20% down and get a fixed rate mortgage. I'm assuming, BTW, that you have a foundational understanding of the real estate rental business and that you understand things like -cash flow, ROI, expenses, etc.

I'm a big fan of adjusting while in flight. Focus on getting your first deal done and then try to get better which deal there after. Eventually, as you're portfolio grows, you'll learn how to maximize it further, if desired.

Pick a direction and get started.

A few other programs you may want to consider: Fannie Mae Homepath (those are 10%) and if you don't own a primary, you might want to consider getting a conventional loan for a primary that is a multi family (duplex- fourplex). You can move in for as little as 3.5% down and then depending on your situation, you can purchase another primary in as little as a year - just a few thoughts.