Real estate investors in most cases need at least 25% of the purchase price as a down payment and possibly 35%. But investors willing to occupy one unit of a duplex or similar small multifamily property can get Federal Housing Administration insured loans for as little as 3.5% down. FHA loans are also suitable for borrowers with lower credit scores, and people just getting started in real estate investing.
In November 2014, Scott Trench, a recent college graduate and operations manager for real estate investing social network BiggerPockets, bought a Denver duplex. He put 5% down, moved into one unit and rented out the other. Rental income covered $1,150 of the $1,500 mortgage. A roommate contributed $550 more.
Trench wasn’t just living rent- and mortgage-free. He was also getting started as a real estate investor. In March of this year, he moved out and rented the other side as well. “I’ve got a new set of tenants in there and collect roughly $2,500 per month, on a mortgage of $1,500 per month,” says Trench, who is now renting a place to live while contemplating his next move.
In addition to $1,000 a month income on an investment, he pegs at $20,000 including down payment, he gets tax write-offs, is paying off the mortgage and benefits from any price appreciation. “This is a stepping stone in my real estate portfolio,” Trench says. “It was my home, but it was really an investment property I worked on and lived in.”
What made Trench’s foray into real estate investing work is the Federal Housing Administration’s government-backed mortgage program. FHA will make multifamily loans to borrowers with far lower down payments than almost all other loan programs.
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