Entering The Rental Market

[Nathan Gilbo]

Hello,  I am looking for opinions on my idea both sides are welcome as I am new to this.

I am a recent college graduate with in my first few months of work. I am looking to find my own place now and hope to have a few rental units with it. I am aware of the FHA loan which I will be sure to take advantage of.

One property that I am looking at is asking 129000 and has 3 units and I would live in one of those to abide buy FHA for a year. The area is a college town where rents average around a 1000 per month. What is your opinions on this opportunity?

Also after the year is up for the FHA loan how easy would it be to secure another loan for another rental opportunity?

Is there anyone who has taken the FHA approach? What are some difficulties to grow your rental property portfolio? I would prefer to stick with multi- family property's

Any information is greatly appreciated, thank you in advance. 

[Scott Dixon]

Hey @Nathan Gilbo

The strategy you are proposing is exactly how I started out and it worked fairly well. I stayed in the duplex I purchased with an FHA loan for a little over a year and then moved to a different home for my primary residence. After that first FHA loan you are going to have a hard time finding a lender that will offer any fixed-interest loan product with 3.5% or 5% down if you live in one unit of a 2-4 unit multi. This echoes the point that Nathaniel made above that the second property is going to be a bit tougher or at least take more down payment.

For most 30-year fixed conventional loans tied to investment properties you will need the following

Downpayment 

4 loans and under

Single Family = 20%

Multi Family (2-4 units) = 25%

5 loans to 10 loans 

Note: you will not be able to perform cash out refinances of these loans which could be a big hit depending on your strategy.

Single Family = 25%

Multi Family (2-4 units) = 30%

Reserves (Bank likes to see some funds in case of a rainy day)

4 loans and under = 6 months PITI reserves for the property you are purchasing and 2 months PITI for the other rental properties you own

5 loans to 10 loans = 6 months PITI for all properties

Credit Score Requirement  (sure this moves around with time and different lenders)

4 loans and under =  620 credit score

5 loans to 10 loans = 720 credit score

Lower the score is to the threshold the higher the interest rate.

I am not a lender and everything written above is what I experienced over the past couple years with 3 investments and 1 primary residence properties tied to 30-year fixed interest loans (1 FHA and 3 Conventional).

Best of Luck,

Scott Dixon