Rental Question for the pros

So my wife and I have 4 rental properties. I’m 38, she’s 31. I’ll give a quick breakdown that pertains to my question. The payments I mention are just mortgage, taxes, and insurance, nothing else.

Residence: Single Family 4/2.5: 30 year fixed: 3.75% / $195k owed - payment: $1180 a month

Rental 1: Single Family 3/2.5: 30 year fixed: 4.75%/ $65k owed - payment: $460 a month / monthly rent: $900

Rental 2: Single Family 3/2: 30 year fixed: 5.00% / $42k owed - Payment: $411 a month / monthly rent: $820

Rental 3: Single Family 3/1.5: 30 year fixed: 4.375% / $43k owed - Payment $365 a month / monthly rent: $800

Rental 4: Triplex - all 2/1: 30 year: 5.25% fixed until 10/17, then ARM / $93k owed - payment $700 a month / Monthly rent total: $1375

I try to keep a $20k rental safety net to draw on for expenses and vacancies, which I then replace and bring flush again with the next months rent. I don’t currently have my properties in an LLC, but I do have a $1.3 million umbrella liability policy which covers each property. I do plan on eventually putting them in an LLC.

I’ve acquired all these properties over the last 3 1/2 years. I’m still very interested in continuing to purchase more rental properties as time goes on. But banks are not interested in helping me continue on with another rental until we pay at least one of the properties off or increase our income, which is currently around $130k not figuring rental income (job income most likely will not increase much). On the last purchase I had to do some convincing to get into the triplex with a smaller bank’s in-house loan.

Now this next year, as long as everything goes alright, we will be paying off both our vehicles and the remainder of our student loans, which will free up around $1500 a month. I was considering adding that money to monthly rent income and putting it all towards a property until it’s paid. Rent income on a perfect month would be around $1900 plus the $1500 would put us at $3400 a month to pay extra towards a property, on a good month of course. Then we’d purchase another property and repeat the process. This is a relatively slow way to go about it, which is why I’m coming to the forum. Is there a better way to go about this in a quicker manner because there are some great deals out there that pop up from time to time and currently I have to let them pass on by. Thanks.

It looks like you’re going about this with the conventional loan route. There are regulations about how many loans you can have and then rules about having six months of cash reserves set aside for the properties. If you want to grow faster than the painfully slow road that Mr. Big Banker laid out for you, I think you should look at doing sub2 deals and/or talk to a local bank about portfolio loans.

Small banks will service these investment property loans in-house and not sell them on the secondary market. You aren’t limited to a certain number of loans…only limited to the bank’s comfort level with you and your situation. The difference in these loans compared to what you have now is that you’ll be looking at 10-15 year terms and pay about 1-1.5% higher interest than your other loans. My experience has been to put about 15-25% down for those loans. You will grow, but obviously your monthly cash flow will be lower than your 30 yr loans.

I think it’s time to consider multifamily investments. 10, 20+ units, etc.

Financing at this level is based more on the performance of the property, and less on the investor’s. As you move into multimillion dollar projects, the financing is ‘all’ about the performance of the property and management history.

Time also to consult with an aggressive commercial mortgage broker, about high/low leveraged financing possibilities on multifamily projects.

You’ll find more help is available when you move into/invest in higher-dollar multifamily residential units (not to be confused with ‘commercial’ investing, which includes office parks, shopping centers, etc.).

The mom-and-pop residential investing is OK for what it is, but then you eventually hit a financing wall, like you’ve described. Then it’s either time to go with a blanket type loan, or it’s time to move up the food chain, into higher-finance deals, where more people are motivated to help you succeed.

Generally, commercial lenders are more interested in lending millions, than hundreds of thousand of dollars.

Commercial agents are more sophisticated and often more aggressive in helping you find, analyze, negotiate and close on profitable multifamily deals.

Not to mention that the upsides and returns on multifamily investing is often more like pouring gas on a fire, compared to SFH investing, which is more like using a punk to light charcoal (notwithstanding the very high rent/price ratios you seem to have achieved with your SFH investing).

And also not to mention, that it’s as common as water for (commercial) multifamily residential sellers to participate in some/part/all of the financing, in order to get their projects sold for good prices.


Freeing yourself from personal debt is one excellent way to create eligibility for more loans. A blanket loan may be a good next step for you. It is a commercial loan that “wraps” several individual investment properties into 1 loan with 1 payment. This can be a great way to pick up some additional properties when you have hit your loan limit with Fannie Mae.

The program requires a minimum loan amount of $250,000 and a maximum loan to value of 75%. This means the minimum property values should be at least $335,000. Additional requirements are for you to only have like properties in the same area in one loan.

Unfortunately, not all lenders offer this feature. Blanket loans are available through private lenders in most cases. Though some national lenders may work with investors, it is more common to obtain this type of loan from private lending. The qualifications and stipulations for obtaining the loan will differ from lender to lender. Research the details of the contract before agreeing to this type of loan.

Please note that not all investors can qualify. Blanket loans are generally for seasoned Investors whom have already demonstrated a track record of being able to manage multiple performing properties.

At your age, becoming debt free shouldn’t really be your immediate goal.

Especially NOT using your earnings to pay down mortgages! You let your investments pay themselves off. Otherwise, your “investments” morph into “liabilities.” I think it’s sorta dumb to use earnings to pay down mortgages. That’s what renters are for.

Meantime, you want to borrow/leverage yourself into as much income/appreciation-producing property as possible, in your wealth-building years, including sacrificing your standard of living in some circumstances, so that you can generate that much more wealth by the time you’re ready to retire.

At the same time, your ability to borrow/leverage is NOT contingent on your credit, or your income, despite what some will tell you.

It’s more contingent upon your reliability, character, and perhaps your negotiating skills, if not your willingness to go against the conventional grain.

Most people are not quite willing to do that. And they peak at 40, or whatever.

Meanwhile, learning how to find and negotiate deals with the sellers that are more concerned with getting rid of their properties, than they are in how they get their money, or even how much they get, becomes the strategy for building wealth.

Of course we call these people “motivated sellers.”

That said, the overwhelming majority of really good deals are negotiated.

It’s just that negotiations can be easier when the seller wants out, as much, or more, than the buyer wants in (which should always be the case during a negotiation).

Notwithstanding, you seem to have found extraordinarily highly cash-flowing deals. I can understand you wanting to continue chasing ‘those.’

However, I’m betting that if you can find apartments to invest in, you’ll realize higher upsides, invest with higher leverage and lower risk, than you can by trying to navigate around government-backed financing you’re trying to capture. Just saying.

P.S. I was also 38 when I made a decision to jump directly from ghetto-house investing for cash flow, to multifamily units. It was the best decision I ever made. Never talked to a bank about financing my first deal either. The seller financed 70% of the deal, and I put up 30%, and the repayment terms sucked drain water. However, I bought it for more than a quarter million dollars below market.

That’s it for now.

Thanks for the advice. I’ve actually considered looking into some bigger projects. I’ve had aspirations to make it to the multi-unit apartment level, but I guess I always figured it’d be further down the road when I had a large wad of money to put down. The sub2 deals I’ve found haven’t been great deals so far, I imagine they’re out there, I just haven’t found them yet.

There’s actually a group of studio apartments I was considering taking a look at a few months ago. It’s still available. It has 4 buildings with 50 units and a house at the front for on-site property management. It’s currently for sale for $1,099,000. I know that two of the buildings have been totally gutted and remodeled very recently and the rest of the units have been being remodeled as vacancies occur. I don’t know what the rent roll is but I know rents start at $375 with utilities paid. It’s most likely an increasing price point based on time of lease chosen or month to month. I’m guessing on that part since I haven’t seen a rent roll. It’s located 6 miles from my house in a college town with a good economy and currently plenty of people that like to rent. From the bare bones that I know about it, I thought it seemed like a pretty decent deal.

I was thinking that I’d really like to get into something like that but I guess I’m a bit confused about the steps I should take to make it happen. I manage all of my current rentals but 50 units is pretty intimidating. I have a full time job, so I think I would need to hire a property manager to live in the house at the front. I had a property inspector tell me to stick with single family units because he had bad experiences with a 20 unit apartment he bought. He said that it was too large for any run-of-the-mill property managers to want to take it all on for 10%, but it was too small to hire someone to run it for him because that would eat his cash flow. So he managed it himself and in the end he said he had to sell it because it was running him ragged. That was his opinion which isn’t necessarily mine, but he did plant that seed of doubt in my mind when he told me that.

All ‘studios’ or all bachelors, or even 1/1’s are generally the most management intensive, and least marketable, mix of units you can own.

Owners of these come and go, not realizing the level of attention they needed. They are often the most motivated sellers, and willing to finance, just to save their shirt.

At the same time, these are purchased for cash flow only, and pretty much like running a motel. So, the rents you’re getting are the rents you’re gonna get. So whatever you negotiate up front, is what you’re gonna have to live with for the foreseeable future. These are generally NOT appreciation plays.

At the same time, you need strong management that understands and relates with this niche. Think of a chain-smoking, foul-mouth, version of Bea Arthur …as your onsite manager.

And maybe Quasimoto as your maintenance man, I don’t know.

Notwithstanding, this ‘mix’ will attract the most transient tenants.

This mix is usually obsolete in design, as it will have interior hallways, that are enormously expensive to maintain, old wiring, galvanized plumbing, weird fixtures, lead drain pipes, no off-street parking, flat roofs, and all the rest of the most expensive and least desirable elements.

You need to put all your real estate under 3rd-party, professional management and then manage your managers.

On the studio/one/one deal, you’ll have an enormously difficult time finding a cost-effective management company, that is also willing to take on this type of building.

Owners of these types of projects are especially vulnerable to things getting away from them, because they require such close attention.

Most likely you’ll have to serve as your own management company, and train your own managers, etc., and manage them.

A better alternative, is to invest in a newer, under-performing, mix of units, where you can force appreciation and increase cash flow with better management.

There’s so much I could say, but I would recommend that you analyze at least 100 property data sheets, and get a good idea of what to expect with different scenarios, before you start making offers and negotiating.

It makes no difference what kind of property you analyze, but after you’ve plowed through 100 of these, you’ll be better negotiator, since you’ll know what is a bargain, and why it’s a bargain, and what you wouldn’t touch with a ten-foot pole.

For me, any newer, pretty, well-managed property, would fall into the “not” touching with a ten-foot pole category.


Your friend is right about twenty units perhaps running the owner ragged. Especially a lower-end, cash-flow investment. It really isn’t big enough to amortize the costs of both 3rd party management and maintenance.

Thirty units is my minimum. Thirty units will pay for management and maintenance, if the building was purchased correctly, financed sensibly, and managed properly.

The fifty units should push off the cash flow necessary to pay for management and maintenance, too, depending on the price, financing terms, and management.

The issue is, getting into it sensibly and profitably at the get-go, and not depending on future rent increases, or even more cost-effective management to overcome a mistake. And NEVER believe the owner’s expenses. They ALWAYS leave out (understate) management and expenses. If you hadn’t analyzed that 100 data sheets, you might think you were looking at a cash cow, instead of an abused goat.

The way you mentioned this sounds like an exciting find. But, the doubt you have sounds like you may need more education and mentoring. The positive I like about it is if you’re renting out studios they are too small to rent to families with children, which is why I hate buildings with a lot of 2+ bedroom apartments.

What I also like about it is you mentioning that it’s in a college town with a good economy and plenty of people. That sounds like a great tenant pool to fill it up with. It’s your tenant pool that will either make or break you. I’ve been in the business 20 years. I had two years of mentoring before I bought my first duplex. One of the apartments had three bedrooms and I rented out each of the bedrooms to divorced males who all had great jobs. Rarely would I have to deal with them. They would even fix stuff themselves. Then, I bought a 4 plex in the same city next to a railroad and tried the same thing with another three bedroom apartment, but had a much harder time finding a good tenant pool for that area. It was usually welfare and government aid and a hell of a lot of work and it wasn’t even 50 tenants, but seemed like it. My guess is your inspector probably had a welfare building or a building filled with families and those buildings will drain you so fast that you will be happy to just give the building away after half a year.

As long as the building is in good shape, which it sounds like it is because there is a lot of updating already done on it and in a good rental area, which it sounds like, then I think you’ll do great. College students are great as long as they have a parent co-sign and it’s one student per apartment and you go over all the rules with them and make them sign it that they understand the rules. Get a part-time live in superintendent/retiree to help you out. There’s a way to do it with great success.

I’d say just find a good banker. I’ve got twice as many with you, and have no problem qualifying for a loan. I was shocked this week when a bank financed me at secondary market rates and then kept it in house just to establish a relationship to loan me more money.

Over the last month and a half or so I’ve talked to a couple local bankers about my options. I’ve come across a new deal for a 13 unit apartment that is for sale for $350k. It’s in an area of town that used to be fairly run down, but over the past couple of years, new student apartments have sprung up and people have been buying and updating the older houses in the area. The apartment has 11 2 beds and 2 1 beds. 12 units are currently rented, the tenants take care of the utilities, the one un-rented 2 bed unit needs renovations to be brought up to speed. The current gross rent per year on the 12 rented units is $64,200 and with the addition of another 2 bed unit would knock the gross up to around $70k.

The bankers I’ve talked to said that they would consider giving me a loan, but would require 20% down on pretty much any real estate deal I would be interested in getting into. Also, a 13 unit apartment would knock me into the commercial loan category, which I was told means that I’d probably have to settle on a 12 to 15 year loan on an apartment built in 1955, due to the age.

My biggest problem is that 20% down payment amount. Currently, if I wanted to use every dollar of liquid money I have available, not including my IRA, I’d be pretty close to that $70k mark, but I’d have absolutely no money left and that wouldn’t be wise, because that would basically require several months of perfection from all my properties (no problems, no vacancies, just timely rent payments) so I could wipe the nervous sweat from my brow.

Are any of you currently finding financing for either no-money down or less than 20% right now?

  1. Talk to an aggressive ‘commercial’ mortgage broker.
    They know how to package applications that get accepted.
    They’ll tell you what kind of financing is available, based on your credit, cash available, age of building, etc. etc.

  2. Have the seller carry back a 2nd for the down payment.

Sellers routinely carry all, or part of the down payment, in order to get the prices they want.

Don’t be afraid to tell the seller, "I would be glad to pay you $350,000, if you’ll carry the down payment for ‘x’ years (long enough for you to raise the rents, and qualify for a larger loan that will pay off the seller’s second).

  1. Use the stiff terms you are quoted by the bank/mtg. broker to negotiate better rates and terms with the seller.

Otherwise, take into consideration that most buyers that would be interested in a building this old, will insist on cash flow at the get-go, and will have the same financing rates/terms/sources available to them as you, if they don’t have cash to play with.

In the latter event, they’re likely going to negotiate better prices than you can, or will invest in larger projects altogether.

Talk to a mortgage broker.
Ask the seller to finance your down payment.

I ran some numbers on the 50 unit and it could be a good investment if it has been recently renovated - not just spruced up. Assuming 50 units at $375 and the house at a measly $500 you would have monthly gross income of $17,325. Taking out standard 50% (vacancy, taxes, insurance, repairs and capital reserves) plus an additional 5% for owner paid utilities and 10% for a property manager and then assuming 20% down, 15 years at 5% you would have a NOI of $3,377 which creates a cap rate of 11.3% and a cash on cash return of 18.4%. Could be a good move.