Rental investment properties and down payments

[Alex Romano]

I have watched a number of webinars recommending rental properties investment but I feel like I'm missing something..

Say I want to invest in a duplex for $200,000.  I use $40,000 (20%) from my savings as a down payment.  Ideally, the rooms are rented and I earn $200-$400/month in profit on this duplex.  The goal is to then invest in a fourplex (I'll estimate that the fourplex costs $400,000.)  Assuming that I don't have $80,000 for a down payment, do I purchase this next property with a down payment that's less than 20%  Is the best option to find an investor who is willing to work with me?  If that's the case, what do these arrangements/agreements typically look like? 

This is all new to me and I understand this is likely an amateur question.  If someone could please at least point me in the right direction towards a helpful resource even, I would appreciate it!

Thank you!

[Eric Carr]

If you aren't going to live in the property, you might be required to put down 25%. There are programs to help people get into owner occupied homes with less than 20%, but that comes with a higher monthly cost. Higher principals mean a bigger payment and a higher interest payment - there goes your cash flow. Also mortgage insurance is often involved, which is 1% of the loan amount. Talk to a few lenders when you plan to put less than 20% down, it can be done without mortgage insurance on owner occupied proeprties. As for the second property, your debt to income ratio might come even more into focus. The good thing is, the lender can count at least some of the rental income on the first property, as income. Your lender might also require reserves on the first property (and so on). Like Brett mentioned, you could consider living in one unit, since you're going to pay to live somewhere - really only if you're renting currently. You could rent out rooms in the unit you decide to live in and of course rent out the other unit. This makes sense if it drops your monthly living costs. If it doesn't, then let a renter pay for it! 

Without knowing anything else about you, your current living situation, your income, I'd say buy the duplex with 20% or 25% down, rent it out and run it like a boss, save for the next property and start connecting with a partner investor, or buy another $200K duplex. The rental income will compound and you will be on your way to larger properties. The important thing is to start, the sooner you start, the sooner you start collecting rent, tax benefits, learning how to manage property, and saving for the next and or proving yourself to an investor.