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Rental property question regarding mortgage

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  • Rental property question regarding mortgage

    Hey gang, thanks for the info. I have been a follower since 2011 and love the articles, book, and podcast. Thanks for the work you put into this Jim.


    So before medical school, my wife and I purchased a home and lived in it for 7 years, until we moved away for residency. At the time the market was terrible so we decided to rent it. It has done extremely well. So well in fact that we left it alone and there is less than 40% of the mortgage left. It also brings in over $600 a month. Now we also have our primary home which is in a different city. I have a very good friend who owns a property management company and he deals with all the headaches of the rental.

    I am trying to buy another rental but I am having a hard time finding a lender. I looked into Sofi and when asked about the purpose of the house I said investment and was turned down. Other lenders want a much higher down payment for an investment property. I can say that the house will serve as a second home and turn around and rent it but don't think that is ethical. At the same time, I don't want to sink a lot of cash upfront for a down payment on this third house. I would much rather have the renter pay the mortgage and me keep the cash so I can pay down what's left of my student loans.


    What are your suggestions? Thank you in advance.

  • #2

    You probably want to check out Bigger Pockets for real estate investing advice. Unfortunately lenders across the board are going to be more restrictive on loans for investment properties. The quick and general reasoning is that people are far less likely to default on the roof over their own head compared.

    If you are actually making over $600 a month from your rental after all expenses, including setting aside money for those deferred maintenance items, I would try to bite the bullet and be patient.

    I have a former rental property up for sale. I thought I was doing good making about $250 a month after minor expenses like a broken window. All of that profit got wiped out putting in new carpet when getting it ready to sell. Are you absolutely sure you can't do better just paying off your student loans?


    • #3
      You simply cannot get owner occupied rate loans/terms anymore for investment properties. This occurred in the last couple years as part of the reforms from the GFC. Rates and down payments will be significantly higher. There are federal websites with quick charts that outline everything and are very simple.


      • #4

        What are your suggestions? Thank you in advance.
        Click to expand...

        Practically, get a HELOC on it, to fund the downpayment of the next one if you can't cash flow or save up for it.

        I know some guys on BiggerPockets who do this all the time, but it's easier the lower the total price of the property may be. Keep in mind, if you do put down a lot for a down payment, you can often get a HELOC on it, post purchase up to 80%LTV. You make be able to (re)adjust your capital to debt allocation in that manner. If you put a lot down, you'll also have much high cash flow, which may offset the initial capital investment.

        Do the math on it, see how it plays out. If you stick with the math, and have a higher cashflow, it might be better than just paying the loans off.

        Don't forget, there are always good investments. They aren't always necessarily good for you, today.


        • #5
          That's a great point. I didn't think about putting down a large down payment and then getting a HELOC after the purchase. Thanks for the advice.