Planning for a Rental Property Purchase

If you are on my email list, you may have seen an email where I talk about how we help business owners go from renting to owning a home then to starting with one investment property to then real estate empire. 

I would like to go into more detail about how that works. 

Most people are familiar with buying a home for themselves, but they don’t know how to jump from owning a home to owning a home and an additional investment (rental) property.

Getting that first rental property is actually not as difficult as you would think. 

The reason it is not that difficult is that there is a special type of loan that allows home owners to buy a rental property without having to prove or show their personal or business income. 

This loan is based on the rental income of the property you want to buy; not on your own income. 

The most amazing thing about this loan is that the property doesn’t even have to be occupied with a renter at the time you buy it; the lender simply sends an appraiser who calculates the rental market value (what the property will rent for on the open market) and uses that as the property’s income, even where there is currently no renter in place and the property is completely vacant!

In order to make this work, you do need to select the right property (that will actually produce enough rent to be able to cover the monthly mortgage payment). That is easier to do in some areas than in others. As a California real estate broker, I can help with that. 

Secondly, this type of loan requires a down payment between 20% to 25%. The minimum down payment is 20% and the only reason you would put more, is to decrease the loan amount, so that the rental income is enough to cover: Interest + Principal + Homeowner's Insurance + Property Taxes.

I have seen that people use a windfall or cash flow from their business, inheritance, gifts, savings or legal settlements as a means to procure the down payment.

There are also some creative lenders that allow the Seller to carry a second which means that you could get an investment property for as little as 10% down! the Seller carry back counts as part of the down payment. This option is fairly new and not many people know about it yet. 

Another solution, if you don’t have that in cash, is to take money out of your primary residence through a Second Mortgage. I can help with that, too.  

If you have been dreaming about expanding your real estate assets from your own home to that first rental investment property, this is a way that it could be done. 

The beauty of being able to qualify based on the property’s (potential) income, instead of your own income, cannot be overstated. 

A word of caution: holding a rental property is in most cases not passive income. (Unless you can afford to hire a property manager to manage it for you.) 

Being a landlord takes work, you have to deal with tenants, maintain the property, collect rent, maybe even improve the property.

A lot of this can be handled with online software these days, but you still need to do it. And you definitely have to purchase a good property to begin with, one that has the potential of appreciation as well as good rental earnings. 

As a California real estate broker, I can help you do all of these things, plus connect you with one of our Realtor Partners to help you on the purchase side.

If you are interested, give me a call and I can show you over Zoom how it would actually work in your situation. 

Owning real estate investment property has historically been a good long-term investment for uncertain times economically. It’s also fun. 

The first one is always the hardest. After you have one under your belt, that real estate empire may be closer than you think!