Residential Investors

An investment property is classified as residential if it is 4 units or under. More than 4 units is classified as a commercial property and requires different financing.

What makes a good rental? Three ways to make money:

Appreciation - over time, the property you purchase increases in value. If you purchase in a distressed market or from a distressed buyer, (pre-foreclosure) your upside potential may be higher, sooner.

Cash Flow - you have the ability to rent the property for more than it cost you monthly/annually. These costs must be encompassing to accurately determine cash flow. Costs include loan payments, taxes, insurance, utilities during vacancy, association dues, maintenance and tenant acquisition expenses. Typically cash flow is better with multifamily properties such as duplex, triplex and larger units as you receive more rents and less vacancy exposure. Numerous factors can impact this combination of numbers.

Depreciation (Tax deductions for landlords)

Qualifying the Borrower and the Property
If no previous landlord experience:

Borrower must qualify for current debts PLUS the new investment property payment.

If 24 months history of being a landlord / receiving rental income:

Appraisers estimate of monthly rental income, less 25% vacancy and maintenance factor, can be used to qualify for the payment on an investment property.

Maximum number of financed properties:

As a general rule 4 residential mortgage loans with one being a primary residence is the maximum. There can be exceptions to this rule under certain circumstances.

Rates and terms for investment properties:

Down payment - investment properties require financing for “non owner-occupied” borrowers. They typically require a full 20% down payment and usually carry a slightly higher mortgage rate.