Building a Million Dollar Real Estate Portfolio with Limited Down

Investment properties, rental properties, second homes, etc. are typically going to require a cash down payment at or above 10%, and there really is not a way around it that I have found. Feel free to contact me at the number above in the upper left corner to correct me.

These loans for properties intended to be rentals or second homes at the time of loan origination also have higher mortgage rates (check today's rates with City Creek Mortgage) attached to them.

However, if you plan to live in a property, that changes everything, and now you are acquiring a primary residence with the intent to fully occupy the property, which is typically defined as more than 183 days of occupancy in a calendar year.

Importantly, you are typically required to begin occupying the property within 60 days after closing and live in the property for a minimum of 12 months to satisfy the residency clause, for example, Fannie Mae’s requirements.

Confirm with your mortgage broker, and make sure your HOA (if any) allows rentals before purchasing, if this is your strategy.

Purchase. Occupy. Rent. Refinance or Recast. Repeat.

The BRRRR method (explained by Chase Bank) includes includes buy, rehab, rent, refinance, and repeat.

In this scenario, though, you will not be rehabbing properties. In fact, this method is best for those who do not really have the funds to rehabilitate or renovate a property, at least not to a grand scale without the cash or manpower to do it.

When you do want to rehab or renovate a property, it can require loans or amounts of cash that are not as forgiving.

This method includes buying with minimum down, occupying for a year or a few, restructuring (if possible and beneficial), renting, and repeating that process again for each property you purchase.

When your intention is to live in the property as a first time home buyer, meaning you have not been on the title of a residential property in a few years or at all, you have a lower minimum requirement of 3% or 3.5% for a down payment with conventional or FHA loans, if you qualify for the monthly payment of the given purchase.

Mortgages with no down payment, otherwise known as 100% financing options, exist for FHA, VA, and sometimes special programs like Utah Housing loans. Ask a local mortgage broker about special financing programs.

After your initial purchase, each subsequent home only requires a minimum down payment of 5% if you qualify for the monthly payment of the given purchase.

Important Disclosures for Homeowners and Buyers

Then, somewhere along the way, whether in your first year or later, you should refinance or recast if possible. Eventually, you may be able to restructure your mortgage with a refinance or recast to lower the monthly payment.

If not, you will just rent and repeat. I add the additional step of refinancing or recasting to remind you that it is important and can make a difference in feeling confident about your rental returns, if you choose.

Lastly, rental returns are not always going to be substantial. You may just break even, with the majority of your payment going toward debt service. That is the Utah market. Yet, imagine what appreciation and or principal payments could do for your financial future someday. One thing I'm really excited for is the 2034 USA Winter Games that is being hosted in Salt Lake City. There is already an Instagram page devoted to this event eight years prior.

Mortgage Terms Unaltered

To clarify, you can transition your first property into a rental property when you are able and ready to purchase and occupy a new home, if and when. The mortgage does not change when you do this, and you just keep paying the mortgage as normal.

It is crucial to buy your next property with the intent to live in it initially, again. Primary mortgages are only originated for owner occupied properties. This strategy secures better mortgage terms and gives people the opportunity to accumulate properties without large down payments and become landlords too, should they choose.

Tips for Qualifying for Additional Mortgages

Eventually, after that one year has passed, you can apply again for another primary mortgage with a mortgage broker. When you do, they will use your current property toward your income and debts by using the official monthly rental amount after you find a renter. You can estimate with your mortgage broker until then for the purpose of generating ideas.

In my experience, you need to rent your property for 125% of the total mortgage amount, which may include HOA fees, in order to keep any of the monthly payment debt associated with that property from counting against you. As a result, your first home potentially becomes an income generating asset. If not, it becomes a long term investment paid by someone else entirely and appreciating over time.

Envision the hundreds and thousands of dollars in equity accumulation that will inevitably occur as the mortgage is paid over the period of many years.

Time Builds Generational Wealth

The average American can realistically repeat this process multiple times, creating an accumulating portfolio of properties. This can potentially lead to substantial equity gains. For guidance on the number of homes you can own, you can consult Fannie Mae’s guidelines on their website.

Consider your future net worth. Your journey to wealth creation can begin today. Accelerate your net worth with assistance from Sydney. However, imagine sitting down with an expert mortgage broker and Sydney in person. It is possible.

We can discuss the beginning of many investments in real estate with a no obligation consultation.