ABCs of Buying and Financing Multiple Rental Investment Properties

So, first off, how many rentals can you buy? Well, this depends on a lot of factors.

Really, it’s limitless. There is no rule or limit on the number of rental properties that one person can own.

What the limitation would be is your determination how hard you’re willing to work, and how much you’re willing to invest into making this happen.

Financially, for one, having more money certainly makes it easier, but it’s not necessary.

Number two is your time, doing the work to actually make it happen, because it will take some time.

You do need to go through the steps of actually acquiring the rental properties and either managing them yourself or finding somebody else to manage them, and so on.

So, the answer to the question is there is no limit on how many rental properties you can purchase.

It just would probably take a little bit more time to accumulate a larger portfolio if you were working with less money and you had less time to actually spend on your rental properties.

Like I said in the beginning, I personally own 17 rental units and I’ve acquired those over about a five year period.

I have been working full time in this business for a few years now. For the first couple years I also had a day job but I wasn’t a hundred percent full force buying rental properties this entire time.

I have spent a lot of time also flipping houses and doing wholesale and other real estate investment strategies.

So, if I had been focused on only buying rentals, I probably could have bought a lot more of them, but that’s just to give you an idea.

Another factor to consider is that I am in a very high priced market here in Hawaii. Our median home price is over a million dollars, so that definitely slows down the process as well.

If you live in a market, let’s say in the Midwest, or maybe you don’t live there but you want to invest there, you can buy rental properties in any market that you would like.

It’s just up to you to choose whether you want to buy rental properties in your market where you live.

Or if you live in an expensive market and you would rather buy rental properties in a cheaper market, usually, you should be able to buy a lot more rental properties a lot faster.

The trade off would be that they are going to be much cheaper properties that rent for much less, so you’ll just have to decide.

For my business, Maui Home Buyers, I considered buying homes in the Midwest where you could buy rental properties for $50,000 and get financing and everything on them.

But I decided to buy here in my own market so that I could be more hands-on. I also recognized that I personally preferred to buy fewer rental properties that made the same amount of income.

As an example, I have a friend that owns five rentals on Maui and 57 rentals in Kansas, I believe.

He has always shared with me that his five houses on Maui produce more income than the 57 houses that he has in Kansas, so that’s mind blowing.

Just to put things in perspective, one thing you’ll want to consider when you’re deciding is “do I want to buy rental properties where I live or do I want to buy them in a cheaper market or even a more expensive market?”

Buying multiple cheap rental homes may seem easier than fewer expensive ones, but it may cost you more headache while managing them.

How to Accumulate Multiple Rental Properties

Now, let’s talk about financing multiple rental investment properties. Doesn’t it take a lot of money to buy rental properties?

Well, if you have, like I said, a lot of money, then yes — it is certainly much easier and it can be less work. But it’s not required so you really don’t need a lot of money at all.

Most of the time you do need a little bit of savings. If you can come up with a small down payment, that is very helpful, however, that’s not even necessary either.

By using a method as we in the investing world have come to refer to as the BRRRR method, which stands for Buy, Rehab, Rent, Refinance, Repeat, you can use the same funds to continue buying rental after rental, and it’s limitless.

You can buy as many rentals as you can and refinance multiple investment properties one by one.

You just can generally only do one at a time unless you get really good at finding really good deals.

We’ll talk more about finding good deals in the next section. But for now, all you need to know is that by using the BRRRR method, you can buy a property that needs repairs, that needs a lot of work, that you can fix up, and you can add value to it.

And then you can rent it out, refinance it and then the last step is to repeat, which means once you refinance, you do a cash out refinance, and you get all of your investment back.

If you put a down payment or if you paid for renovations, whatever money that you have tied up in that property, you’re going to cash out, refinance, get all that money back, and then use it to buy the next property and do the exact same thing over again.

So, you don’t need to be able to come up with $50,000 every time you buy another rental. You can use that same money.

If you are able to save $20,000 or $30,000 or $40,000 as one down payment, you can keep reusing it.

Now, what if you can’t save $40,000, $30,000, $50,000 or anything for a down payment?

I suggest that you have some cash in the bank, some kind of reserves or money for renovations and repairs, especially once the house is rented out.

It’s because there will be times where you need to make some repairs or have some things that you’ll have to spend money on, but not much really. I mean, certainly not $40,000 or $50,000.

So, how you get around this is if you don’t have that money, you use an option called a hard money lender.

And you are going to use a product that hard money lenders offer which is called the Debt Service Coverage Ratio loan. So, that was a lot to unpack. Let’s talk about it.

A hard money lender is a lender that will finance based on the asset. It’s different from a traditional mortgage broker or mortgage lender.

Traditional lenders will give you a loan based on how well qualified you are. A lot of times, the requirements for this can be very, very strict.

According to their guidelines, you might have to make six figures in W2 income and have been at your job for years.

Sometimes you might not be able to have any credit card debt or an auto loan and your what we call the debt to income ratio needs to be really low, which means you have very little debt or very high income.

The other factor is that you have to have really good credit. The property also has to appraise and has to be in good condition and so on and so forth.

So, using traditional financing to buy investment rental property can be very challenging. I’ve done it before on certain properties.

But there’s also been times where it was not an option or I just couldn’t qualify. So I did have to find a hard money lender to get a debt service coverage ratio loan — DSCR.

What that means is that the debt service or the total monthly mortgage payment (because it’s still a mortgage, it’s just not with a conventional bank like your regular bank that you’re going to have your checking account with), is going to be through a hard money lender.

Now, they may still look at your credit score, but it’s not going to really weigh a whole lot. I think they’ll have a minimum credit score somewhere, maybe in the high 500 to low 600s most of the time.

But that’s not really the big factor to qualify for a hard money loan. What they really care about is will this property be a good investment.

This is great for you looking to buy a rental property as an investment because that’s all you really care about.

If the property’s going to make a good investment, then your credit and your income shouldn’t really matter that much.

The property is going to produce the cash flow to cover the mortgage anyways, so you shouldn’t have to worry about that, and that’s exactly how the hard money lender is going to think about it.

They are going to make sure that the monthly income from the property is more than enough to cover the debt service on the property.

The reason we are talking about them and how they can help you buy rental properties without so much cash is because they, like we said, are going to lend based on the property’s value.

Now, if you can find a property, let’s just use easy numbers as an example. Let’s say you can find a house that would be worth about a hundred thousand dollars, but it needs some repairs.

And let’s say it needs $10,000 in repairs. And you are able to purchase it for, let’s say $60,000, because it’s in rough shape and the seller is having trouble selling it.

It needs repairs, and so the seller needs an investor that’s going to come in and buy it as is with no contingencies, and that’s what you’re going to do.

You’re going to add value and get a good deal on the property by taking it with all the repairs it needs and in the condition it’s in.

And you are going to handle hiring a contractor to renovate it and make all the repairs.

So, we said you were going to buy it for $60,000, it needs 10,000 in repairs. That means you have $70,000 total out of cost expense to buy this rental property.

Now, that’s not coming out of your pocket because you are using a hard money loan. So the hard money lender is going to look at the property and say:

“Okay, it’s going to be worth a hundred thousand dollars once it’s fixed up. It needs $10,000 in repairs. We are going to lend you 90% of the after repair value.”

Or a lot of times, you know, each hard money lender is different, they might say, we will do 90% of the after repair value or 70% of the current value.

Or there are a few different metrics they’ll use, but the point of it is that they will also lend you the money to do the renovations.

That’s the really big kicker. A lot of times they’ll finance a hundred percent of the renovation budget.

So again, it just depends on which lender you’re working with and what exactly their terms are.

You should call a bunch of hard money lenders and find out which ones can offer the best terms for your scenario and make your decision based on that.

If you have got some more cash in the bank and getting the highest loan amount is not the most important thing to you, then you might want to try to find a lender that has lower interest rates or better terms.

One of the things about a hard money lender you need to be prepared to know is that they will have significantly higher interest rates and points than if you went to a traditional bank for a conventional mortgage.

That’s because it’s a much shorter term loan. Generally, they do these DSCR loans for 30 years at times also, but a lot of times they only are doing a one year or a two year loan

And it’s just for you to go in and renovate the place until you can refinance it and get a conventional loan at a lower interest rate.

So, just be prepared. Don’t be surprised if you are quoted 12% interest and maybe two points or three points upfront.

That’s perfectly common and happens every day with hard money. It shouldn’t matter as long as the rental property makes sense.

So, if the property is going to rent for enough to provide a cash flow, then paying a little bit more each month on the mortgage is not going to kill you.

If you are still making cash flow, you are still making more money than you were if you hadn’t bought the rental property, right?

Of course, you still want to shop around to get the best possible rate. You can compare rates of local lenders with a few clicks by filling out this quick form.

Anyways, back to the hard money lender. They are going to, like I said, finance based on the property itself.

And, again, we said that they’ll finance, a lot of times, a hundred percent of the rehab and the majority of the purchase.

So you may be able to buy a property with them for very, very little to no money out of pocket, depending on how good of a deal you find.

So, that’s how to get financing on multiple investment properties. Once you are done with the renovation and you’ve got the property rented out, you are going to refinance the property.

Like we said before, that you are going to refinance it so that you can get all of your capital back out.

If you have anything invested, you’re going to get that money back out so that you can use it as a down payment on the next property.

And you are going to do the exact same thing again: you are going to find a property that needs repairs that you can get for a discounted price, so that you can build equity in the property then rent it out, start producing cash flow, and then you can go to a traditional lender.

Or if you don’t have good enough credit or you can’t qualify, or have any challenges there, you can just go back to your hard money lender and say: “I want to refinance this into a 30 year DSCR type of loan.”

And you can keep the loan just like that. No matter how good your credit is, no matter how much income you have — that stuff doesn’t matter.

You can buy as many rental properties as you can. And at that point, like I said, you are going to refinance, whether it’s with the hard money lender or the bank, you are going to get your money back and do the exact same thing over again.

Buying Multiple Investment Rental Properties at Once

Now let’s talk about how to get a loan for multiple rental properties.
I can give a personal example. Just a few months ago, I personally bought three rental properties at the same time, one of them being a four unit property.

Actually, I bought six units all together all at the same time. And I did that by using conventional financing through a regular bank.

So, anybody that tells you that you can’t do that, they don’t know what they’re talking about. You can apply for multiple rental properties.

Personally, this is a sensitive topic for me because I wanted to buy rental properties for so many years and I would talk to people.

I worked in real estate, so I thought I had really good resources. I would ask the broker that I worked for, for example, if I could buy rental properties, if I should buy rental properties, and so on.

I always got negative responses saying “oh, you can’t get mortgages for those kinds of properties. You can’t get financing. There’s all these problems, blah, blah, blah, blah, blah.”

Well, it turns out those people were trying to help me, they had good intentions, but they did not own rental properties so they didn’t understand what the benefits were and what the solutions were and how to work around these things like getting financing.

So, bottom line, can you acquire multiple rental properties at the same time by using financing?

Yes, you can. If you have good credit and high income, that makes it a whole lot easier because you can just go to the bank like I did on these last three properties.

I bought them all at the same time by using bank financing. I wouldn’t say it was a piece of cake because bank financing is complicated and they request all kinds of documentation.

But it was certainly doable and I got a much better interest rate because I was able to qualify and do the extra work.

If I wasn’t able to qualify, I would simply use the same product we just talked about in the last section, a DSCR loan through a hard money lender. That’s the best option for you.

The other options include bringing on a partner, which I’ve personally done as well, and finding a private money lender.

So, if you know someone that has a lot of equity in their home, they can use a HELOC to get access to capital that they don’t need and they could be willing to invest it with you.

And maybe it costs them 5% interest to take out a hundred thousand dollars HELOC, whereas they can lend that money to you and you can pay them eight or 9% interest on that HELOC.

They are getting a good return on their money, which they otherwise would not have been using. So it’s a win-win for everybody.

If they weren’t investing that money anyways, they are paying the bank 5% interest to have that hundred thousand dollars line of credit.

And you are paying them eight, nine, 10% or whatever you agree on to use that money.

So, your friend is making the difference and they don’t have to do anything so they are making a truly passive investment.

They are earning a return on cash flow and they are also helping you to acquire more rental properties at the same time.

So, let’s talk about the differences between those different options.

We talked about the hard money lenders. You can use those to obtain multiple rental properties at the same time.

The challenge there is that if you don’t have enough money for whatever down payment or renovations you might need, then you might be limited to only doing one loan with the hard money lender.

In this case you have a few different options. You can buy one of the rentals with the hard money loan and then you could buy another rental with a private money loan or with bringing on a partner.

Or you could buy both or three or however many rental properties at the same time by using hard money and then use your friend with a private money loan to fund any down payment or any cash that is needed from you.

At the same time, in the same way, we can do that with a partner. So, you can use the partner to fund any down payment or any cash needed to close on those deals.

Personally, I have a story about this. When I was just starting off, I bought my first rental and I had saved up $30,000. That was the down payment on my very first rental property.

I bought the rental, but I had not done the refinance yet so I didn’t have the money to buy the next one. But I found a great deal.

So, I went to a friend who I knew had good income, and she had some savings that she wanted to invest.

She was interested in real estate, but she was a CPA, she had a full-time job, and she did not want to leave her job to go looking for rental properties.

She just wanted to invest that money in rentals and I was the perfect person to do that with her and to help her achieve that.

So, I came to her and said: “Hey, I’ve got this deal on this rental property. I can handle it. I know how to get the deal, and get it rented, and make the cash flow. I just don’t have the money.”

So, she said, let’s partner. That’s perfect. She wrote the check. It was $108,000 total and we purchased it for $97,000.

I believe we spent about 8,000 on renovations, and then we had a couple thousand in closing costs.

So, we still own that property today, we are 50/50 partners, and every month we make about a thousand dollars in cash flow that we split 50/50.

She makes $500 a month in cash flow. I make about $500. I think it’s about $450, and it’s a great deal for both of us.

She doesn’t do any work. I still manage it, but honestly, I probably spend a few hours a year on that property. So, it ends up being a great deal for me.

Plus I have equity in that property. As property values have increased, we now have around a hundred thousand dollars in total equity.

So, after her getting her initial investment back, she has about $50,000 in earned equity and I also have about $50,000.

So on top of the $500 a month that we each make, we each have about $50,000 in equity for whenever we decide to sell. We can cash out that equity and roll it into the next rental property.

Now, let’s talk about the best way to get multiple rental properties with little money. We have already kind of talked about the financing for these properties.

But what we haven’t talked about is how do you find these properties for these lower prices where you can add value?

How can create that value in the property so that you can cash out, refinance, and get all of your capital back?

The best way is finding motivated sellers. You can find a motivated seller that’s got a property that has problems. Use one of the best ways to generate motivated seller leads for real estate investors.

For example, it needs a lot of renovations. Many investors specialize in buying abandoned homes. Maybe there are tenants in there that are not paying and they are not being cooperative.

Or for whatever reason, the seller just can’t sell it on the MLS with a realtor. It just doesn’t meet the requirements for a turnkey buyer to come in and buy it.

So, if you can find those types of sellers, you can create the value of what you need in order to complete that BRRRR method that we talked about earlier.

Like we said, generally, in order to do a successful BRRRR deal you need to purchase the property.

The general formula is going to be purchase price plus rehab equals 80% of the after repair value.

So, let’s give hard numbers again. We’ll use kind of similar numbers to what we talked about before.

Before, we talked about a property that would be worth $100,000 once it was fixed up, and if you were able to find it for $60,000 and it needed $10,000 in work, that would be $70,000 total invested.

Now, let’s say you used a hard money lender to fund that $70,000. Now, you have got the property all fixed up and you get it rented out and you owe the hard money lender $70,000.

So, now you go to your traditional bank right down the street, whoever you have your checking account with or your mortgage lender who shops around at different banks, and you tell them: “I want to cash out refinance this property.”

Generally, they are going to say that they’ll lend you up to 80% of the market value of that property.

So, we already know that property is worth about a hundred thousand dollars. Right now, 80% of the hundred thousand is going to be $80,000.

You just made $10,000. If you successfully complete this deal, you will have some additional fees, you’ll have closing costs, and you’ll probably have to pay some points.

So, let’s call it $75,000 all in on the deal. And if you can borrow the $80,000, take out or refinance at 80% loan to value, you just earned $5,000.

And you still have the cash flowing rental property, every month the tenants will be paying down the mortgage for you, and it’s a win, win.

There are a lot of different ways this BRRRR method makes a lot of sense.

So, now again, finding those rental properties can be very challenging. What if you don’t have the time to go find those motivated sellers or you don’t know how to?

There are solutions for this situation, so don’t worry, we are going to talk about that right now.

First, I’d suggest that you try to find investment rental properties at the HouseCashin marketplace for real estate investors.

This is an extensive nationwide search engine that connects investors with motivated sellers and wholesalers.

To make sure a deal is listed “for sale by owner”, look at the label on the preview images of the listings properties. It should say “motivated seller”. These listings have owners’ contact details in them.

Another solution is to look into listings with a label “wholesale deal”. This means that a listing was made by a real estate wholesaler with whom you can connect by responding to the listing.

A wholesaler is a specific type of real estate investor that goes out and just finds great deals, but they don’t actually buy them.

They just get them under contract so that the seller has to sell to them for the price they agreed on.

Now, let’s go back and use another example. Let’s use that same example we talked about before.

If the wholesaler found that house for $60,000 that needed $10,000 in work and would be worth $100,000, that wholesaler could then sell the right to buy that house.

This is also known as selling the contract or assigning the contract to another buyer. And they can charge a fee for that.

I’ve done real estate wholesaling many times myself. The numbers we used would work great for a wholesale deal, because that wholesaler, if they got it locked up for $60,000, they could sell it to another investor for $65,000 or even $70,000 and still have real estate cash buyers lined up.

An investor can still buy it for $70,000, put $10,000 into it, and still cash out refinance and get all of their money back.

Because they have still only invested $80,000, which means they can get all of their capital back and they can still go on to buy the next BRRRR rental property.

Working with wholesalers is a great strategy. There are wholesalers in almost every market out there.

Their job is just to go out and find these deals, get them locked up under contract, and then bring them to you so that you can buy them by using a hard money debt service coverage ratio loan.

Then you can do the renovations, get it rented out, then refinance, get your capital back, and then go back to the wholesaler and say: “Let’s do it again. I’m ready to do the next one.”

So, how are you going to find real estate wholesalers? Well, the best way is there are different online real estate investing resources such as realestatebees.com or HouseCashin.

There are different websites like that where you can network and different wholesalers will be marketing their services.

You can also go to real estate investor events and join real estate investment clubs.

Every area has a group of real estate investors that will get together, network with each other, and strategize.

And all the wholesalers will always be there because they are looking for investors like you to build a cash buyers list for their real estate wholesale deals.

This way, when they get a deal locked up, they will email it to you and you will be the one to buy it. That’s how they make their money so they are going to be happy to meet you.

So, if you go to a real estate investor’s meet-up, just ask for the wholesalers. Ask around until you find some wholesalers.

Let them know that you want to be added to their buyers list and you are looking for rental properties, and that’s all you do.

And now you just wait for the emails to come in and see the deal when it comes in, look over it, see if the numbers make sense, talk to a couple contractors if you need to.

Make sure the renovation numbers add up, talk to a couple other real estate wholesalers, realtors, or anybody else if you need to make sure that the numbers on the house seem right.

You can also talk to your hard money lender and make sure that the property qualifies and everything adds up and looks good.

I hope this has been helpful for you. We have talked about exactly how you can buy many rental properties at the same time, even if you have little to no money.

And again, I’m living proof this is possible. Anybody can do it, and I hope you give it a shot. I wish you good luck and I thank you for checking out our article.