Investment Properties:
the complete, no-BS playbook
From “what should I buy?” to “how do I finance it and not get wrecked?”—use this blueprint to analyze, fund, and operate rentals like a pro. We’ll cover loan programs (DSCR, conventional, bank statement), the cash-flow math, taxes, risk controls, and step-by-step deal workflows.
1) Property types & where each wins
“Best” depends on your market, risk tolerance, and whether you optimize for cash flow now or equity later. Here’s the quick landscape.
Single-family rentals (SFR)
- Low tenant turnover; easier to finance; strong resale pool.
- Often lower cap rates than small multi-family in hot metros.
- Good for appreciation + long-term debt paydown.
2–4 units (duplex/tri/quad)
- Better income density; vacancy risk spread over units.
- Still residential financing; more competitive cap rates.
- Great bridge from SFR to larger scale.
5+ units (small apartment)
- Commercial financing; NOI-driven valuation (force appreciation).
- Requires stronger ops; lenders scrutinize DSCR & experience.
- Cap-ex planning and professional management recommended.
Short-term rentals (STR)
- High gross potential but volatile occupancy and regulation risk.
- Heavy management; cleaning & dynamic pricing critical.
- Check local ordinances and seasonality before underwriting.
2) Financing programs compared
| Program | Use case | Typical LTV | Underwriting focus | Notes |
|---|---|---|---|---|
| Conventional (non-owner) | SFR / 2–4 units, W-2 borrowers | Up to 80% | Borrower DTI, credit, reserves | Best pricing; rental income can offset. |
| DSCR loans | SFR/2–4u/5+u; investor-friendly | 75–80% (varies by DSCR) | Property cash flow (DSCR ≥ 1.0–1.25×) | Fast, easier on income docs; rate premium. |
| Bank-statement / Non-QM | Self-employed / irregular income | 70–85% | 12–24mo deposits, reserves | Flexible docs; higher fees/rates. |
| Bridge / Fix-&-Flip (LTC) | Value-add, BRRRR | Up to ~85% LTC | ARV, scope, experience | Short term; exit via DSCR/conventional. |
| Portfolio / Credit Union | Multiple props / nuanced files | Case-by-case | Global cash flow + relationship | Negotiable terms; local focus. |
DSCR (Debt-Service Coverage Ratio) = Net Rent / PITIA. Lenders vary, but a common floor is 1.0–1.25×. Higher DSCR generally unlocks better pricing and/or LTV.
3) The math that actually matters
Key formulas
- NOI = Gross Scheduled Rent − Vacancy − Operating Expenses (excludes debt)
- Cap Rate = NOI ÷ Purchase Price
- Cash-on-Cash = (Annual Cash Flow ÷ Cash Invested)
- DSCR = Net Rent (or NOI proxy) ÷ PITIA
Expense assumptions (starting points)
- Vacancy: 5–8% long-term; 10–15% value-add or STR seasonality
- Repairs/Cap-Ex: 8–12% (older props toward the high end)
- Property Management: 8–10% (STRs higher due to turnover)
- Insurance + Taxes: pull actual quotes; stress +10–20% YoY
Worked example (SFR)
Purchase $320,000; rent $2,450/mo. Taxes $3,800/yr; insurance $1,600/yr; mgmt 8%; vacancy 6%; repairs/cap-ex 10%. 20% down, rate 6.75%, 30-yr.
4) Strategy stacks that actually scale
BRRRR (Buy-Rehab-Rent-Refi-Repeat)
- Buy undervalue; force appreciation via rehab.
- Stabilize at market rent; refi into DSCR or conventional.
- Risks: ARV miss, rehab overruns, rate shift before refi.
Turnkey Cash-Flow
- Buy stabilized assets; lower headache, lower yield.
- Focus on boring markets with stable job bases.
- Win with buy box discipline + volume over time.
Value-Add Small Multi
- Under-market rents, minor renos, utility bill-back (RUBS).
- NOI growth drives valuation; refinance or sell.
- Mind tenant laws, notice periods, permit rules.
5) Taxes: the levers that move your real return
Depreciation
Residential (27.5 yrs) and cost-segregation accelerate deductions (engineer study).
- Passive losses may be limited; track carryforwards.
- “Real estate professional” status changes limits (ask CPA).
1031 Exchanges
Defer capital gains by exchanging into “like-kind” property via a qualified intermediary.
- 45-day ID window; 180-day close window. Plan ahead.
- Match or increase debt + value to fully defer.
Taxes are nuanced and change often. Use this as a map, not legal advice—coordinate with a CPA who knows landlords and investors.
6) Risk controls you’ll wish you set sooner
Before you buy
- Stress test at +1%–2% interest rate, −5% rent, +15% expenses.
- Order sewer scope, roof & foundation inspections on older stock.
- Budget initial cap-ex (water heater/HVAC/roof reserve).
After you buy
- Maintain 6–12 months of PITIA reserves per property.
- LLC + umbrella + proper landlord insurance endorsements.
- Written tenant criteria; document everything.
7) Operations: finding the margin
Tenant funnel
- Pro photos, floor plan, screening criteria visible upfront.
- Pre-screen with income & credit bands; fair-housing compliant.
- Automate showings & applications.
Expense discipline
- Annual tax appeal; insurance re-shop; utility audits.
- Preventive maintenance calendar; vendor rate card.
- Track KPI: ΔNOI/unit, turn time, delinquency rate.
STR-specific
- Dynamic pricing; minimum stay rules; occupancy pacing.
- Hotel-grade cleaning SOP + photo checklist.
- Noise sensors + neighbor messaging plan.
8) Deal playbook (checklist)
- Define your buy box: metro, property type, price range, DSCR target, rehab tolerance.
- Get pre-qualified: conventional vs DSCR vs non-QM; confirm reserves and LTV.
- Build pipeline: MLS alerts + agent + wholesalers + on-market “stales”.
- Underwrite fast: rent comps, expense model, stress tests, walk-through.
- Offer with outs: inspection & financing contingencies where possible.
- Diligence: inspections (incl. sewer), insurance quotes, permit history, lease review.
- Close & stabilize: immediate safety/cap-ex, marketing, tenant criteria, automation.
- Refi/scale: document NOI improvements, shop lenders, rinse and repeat.
Want a side-by-side DSCR vs Conventional quote on the same deal? Get a 2-minute pre-quote—no hard pull—then pick the cheaper lifetime cost.
9) FAQs
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