As far back as I can recall, my parents had rental properties. It seemed so … normal.
My ventures into being a landlord began not as a purposeful rental purchase, rather, we’d outgrown the home we’d bought and wanted to move but the market had shifted leaving us in an upside-down position. Sound familiar? With a bit of lender magic, it was determined qualifying for both the old and the new was an option, so off we went into investor land.
Admittedly, that first experience was truly amazing. Without exaggeration, the tenants loved the house as their own and cleaned the tile grout with a toothbrush when they vacated after 2 years occupancy. And, truth be told, there was a “we got so lucky, we can’t expect another such experience” relief, so we decided to sell … that plus the equity sitting in that house was what stood between me and the wood floors I wanted.
Fast forward through many weekends spent at the football field, nearly 2 dozen family medical issues, a couple of cars, some school tuition and a divorce, I wish the house had never been sold … by now it would be income less property taxes, fully paid for by someone else.
C’est La Vie. Hindsight is 20/20.
Yet, that’s not where my rental investor story ends.
Today, my husband and I have several rentals, each gained via a different lending opportunity that I am also able to use to advise buyers on how to build wealth via rental investment.
Leapfrog … This method is the manner of which my first rental property was procured. I used owner-occupied financing, which can be as little as 0% down with VA or USDA loans, 3.5% on FHA or 3% on Conventional products, to buy the house. When the second house was bought, as it was to become the new primary home, owner-occupied financing was again a choice I had!
Second Home/STR … Post divorce, I found myself bouncing wall to empty wall each weekend my children were away. The memories were all-consuming. After a fully-vetted financing and distance from primary property convo with my lender, we were able to put a purchase plan together using owner-occupied, second home financing which, at the time only required 10% down! In my case, the condo building I purchased in did not allow short-term rentals, but there are other opportunities out there (like single-family lake homes) that may allow a second home purchase for personal use as much as possible and someone else’s on your “I can’t make it there” weeks. In my case, after 4 years of using as an escape, this week I put a 1 year tenant into the property.
Self-Directed IRA …The number one stop point for many would-be investment purchases is having the funds for any down-payment. We live in a society of high-debt and little liquidity. Additionally, most people treat their IRA portfolio as untouchable due to the tax implications. What is generally unknown is that funds from a traditional IRA can be transferred to a Self-Directed IRA for purchase of ANY investment … stocks, gold, cows … HOUSES!! We used this method to broaden our portfolio by 2 tangible home assets. There are caveats … rent goes to the SDIRA (you can’t touch the money until 59.5 so there isn’t a tax penalty), no immediate family member can be your tenant, and you need to be very detailed providing documentation to your CPA.
Traditional investor purchase … This last one is potentially the hardest to stomach as it does require 20% down and has higher interest rates attached. However, when you have either family in need or a need to spend money so Uncle Sam doesn’t get as much from you, this is another potential win-win that has worked for us.
At the end of all the days, owning rentals isn’t as scary as it seems, and more attainable that most people think.