Just like building a home, your real estate investment strategy begins with a foundation. While some successful real estate investors found ways around this, most knew that the foundation of their journey starts with having good credit. Unless they came from wealth, they knew that this process is going to require the use of OPM… Other People’s Money. In most cases, that was institutional money in the form of mortgages.
Most began with the purchase of their own home while others jumped right into investment properties. The correct route for you may depend on your available assets. A primary residence requires much less down payment than an investment property. If you’re a veteran, you may have the ability to purchase your home with no down payment whatsoever. If you’re not a veteran, you may still qualify for a down payment assistance program.
In addition to having good credit and funds for a down payment, investors need to show sufficient cash flow to prove they can handle the financial obligations of an investment property even if there is a lapse of income from the property, so lenders would build in a 25% vacancy factor into their calculations.
Currently, there’s a loan program that makes this process easier for the would-be investor. The program is called, Debt Service Covered Ratio or DSCR, and it allows the investor to qualify for a mortgage solely based on the rents of the subject property. This means that there is no need to provide the lender with pay stubs, W2’s, 1099’s, tax returns, or profit & loss statements!
So, as long as you have a credit score of at least 620, 15% to 35% down payment, depending on your credit score & if you’re a first-time investor and the subject property rents cover at least 75% of the new mortgage payment, you may be on your way to building your investment property portfolio.
