Hi @Michael Modugno. You asked specifically for advice on investing in single family homes and needing a low down payment. Many of the things to consider will revolve around your ability to get loans for this and the next homes. Yes, as your lender mentioned, there are low down payment options available for owner occupied homes. If you are trying to further decrease your initial cash outlay, you might try to pursue a closing cost credit from the seller as part of your offer where you ask the seller to kick in a certain amount of money at closing to reduce your closing costs and thus some of your initial out of pocket cash spend. The amount you are allowed to receive will be dictated by your loan so definitely ask your lender how much you can get and what you can use it on and for what closing costs. It needs to be used on specific closing costs and you don't get to keep whatever you don't use on closing costs so don't try to ask for more than you can use.
You'll want to get something in financeable condition but likely something you can add value to in order to maximize what you can rent it for. So if it's missing a kitchen, a furnace and someone broke in and stole all the copper pipes before it hit the market, lender might not be able to get you that 5% down loan on it.
@Paul De Luca touched on DTI potentially becoming a problem as you try to scale. You definitely want to keep an eye on that. DTI is your personal DEBT to Income. Say you qualify with your normal job's income for the loan to get this 1st house, you then go rent it out and try to buy another property. On your way to get a loan to buy your next house, house 2, the lender will look at your income to see if you can afford the payment on house 1 AND house 2. The lender may be able to use some of the rental income from house 1 to offset the costs of that house, but often I find they will only use 75% of the actual rental income or whatever the market rent is for that area. So for simplicity let's say you buy a $200,000 house and rent the house out for 1% of that at a monthly rate of $2,000. If you put 5% down and get a mortgage rate around 7.25%, taxes at $4,500, mortgage insurance of say $120/mo(mortgage insurance/PMI, if you don't put 20% down, this cost can vary based on your credit score and actual $ down payment) and homeowners insurance of $100/mo, that gets you a payment around $1,900. If you are charging $2,000/mo for rent and the lender is only willing to consider 75% of that $2,000 rent, then $2000 x 75%= $1,500. So the lender can use $1,500 of House 1's income to offset the $1,900 House 1 payment meaning your regular income needs to be able to cover the payment on that $1900-1500=$400/mo plus the cost of the new mortgage for house 2 AND since you mentioned you owned a duplex, you need to calculate the same income and expense calculations we did above to figure out how much you qualify for in terms of a mortgage. Ask a lender how long you need to rent the property for in order to use the rental income it generates, or if it's not rented yet if they can use an estimate for market rents. The lender might allow 45% of your total income to be used to offset debt and the new mortgage. A great lender can help you calculate and understand your numbers and also guide you on how to improve your DTI by doing things like working to pay down other debt, car payments, etc.
I am not a lender, if your current lender isn't helping you understand all this and how it will impact your ability to buy the next several homes, then find a strong lender that will take the time to help you. I am a Realtor in Chicago's Northwest suburbs. If you want a great local lender who can walk and talk you through all these details and help you understand what it's going to take, let me know and I can get you contact info for one I have many of my buyer clients use.
The other question you will NEED to be more familiar with is how much in 'reserves' your lender will require for each property you hold. So if you are bootstrapping just to save a down payment, but don't have other money available to you for reserves, then you might not qualify for the next loan. The reserves amount will vary so talk to your lender. They want to see that you have access to money should something go wrong, a tenant stops paying, etc. and may say you need to show 2 months of reserves for each property you own, sometimes they may consider a portion of 401k savings as a potential reserves. Again a great lender will cover this with you so you can plan ahead.
As you may have noticed in the above rent calculations, the income and expense numbers were extremely tight. So it will take patience and effort to find a property that works out on the numbers. You can play with a mortgage calculator online to figure out how all those numbers work if say you get that house for much less $ and add some sweat equity to get it to rent out. Remember your goal is investing, not just to pick up 5 homes in 5 years. The numbers need to make sense and the house either needs to make you money now, or be in an area you strongly feel will appreciate in value from where it is today. Don't forget to plan for future repair expenses, vacancy, and be realistic on what you can rent a place out for. That 30 year old roof and 50 year old furnace won't care if you can afford replacing it or not. If you are just breaking even on the homes you are buying, you will find yourself spending your regular income just to keep the maintenance up on the homes. The cost of a roof on a 3 story apartment building might not be that much different than the cost of single family ranch home with a similar footprint, but the 3 story may generate more income from 3 apartments for you after expenses than a single family home generating having 1 renter monthly. Plenty of people invest in single family homes, if that is what you've decided to focus your investing on then you really want to get comfortable with the numbers and costs so you can plan accordingly and put yourself in the position to be able to buy the future homes. Does that help?
