Buying multiple residential properties as an investor has an abundance of benefits. With that being said, it’s also an intimidating feat, especially if you are transitioning from owning a property or two, to five or more. A commercial loan may not be the route you want to take – and it surely doesn’t have to be. This article will highlight how to purchase multiple residential properties without a commercial loan.

What’s the difference between a commercial loan and a conventional loan?

There’s a couple of contrasting points. The length of a commercial loan is usually shorter with a more aggressive interest rate than that of a conventional loan. Commercial loans range from five years or less, to a maximum of 20 years. Sometimes at the end of a commercial loan, there is a balloon payment due.

You can choose a 15 or 30-year conventional loan lifespan. Residential loans are amortized over the life of the loan, which means it will be fully repaid by the end of the loan term. Your monthly mortgage payment remains the same, month to month, until the end of the loan. A balloon payment will not be necessary.

How many homes can you purchase without securing a commercial loan?

“Technically, you can buy ten homes without needing a commercial loan,” Says Ben Flurey, General Manager at RPM Iowa.

That’s the short answer, but can you actually buy ten residential homes? And should you, within a year? “A lot of lenders won’t allow you to borrow that much because it can be seen as a big risk,” Flurey says. “Most traditional lenders will give you up to four properties.”

With four new sources of income, there are also: four more downpayments to make, houses to update if needed, and four mortgages to pay. Have a plan in place and reserves in the bank in case something goes awry with any of your transactions or properties.

If you’re on track to becoming a real estate investor, or are looking to exponentially grow your portfolio at a faster rate than you are now, you’ll need to talk to the professionals.

Talk to your REIA.

First things first, talk to your real estate investment advisor (REIA). If you don’t have one yet, find a real estate agent whose primary focus is finding investment homes instead of primary residencies. Some property management companies that specialize in single family homes might have a REIA as a part of their team.

A REIA will be able to look at your financial status and provide you with honest feedback on how to grow your wealth without crossing a line that will put you in a financial risk situation. They will also be able to look into homes within your budget that are good investments.

How is a conventional loan beneficial for real estate investors?

There’s a couple different reasons why a conventional loan may be a better route for you to take as an investor. Let’s take a look.

Lower interest rates

The higher your credit score, the lower your interest rate should be. Conventional loans heavily rely on your credit score to determine your rate. Interest rates are as low as they have ever been, so if you’ve been on the fence about investing, definitely take rates into consideration.

Higher loan limits

Although this article has focused primarily on conventional loans vs. commercial loans, it’s important to note that a conventional loan has a higher limit than government-backed loans (like an FHA). “If you have a credit score of 620 or up, a conventional loan is a better deal for you,” Fleury says. “With an FHA loan, you’ll need to pay mortgage insurance for the life of the loan, unlike paying for mortgage insurance until you hit that 20% equity.”

You’re also more likely to receive a higher limit similar to that of a commercial loan with a conventional loan than any other option.

Longer loan lifespan compared to a commercial loan

A longer loan lifespan means your payments will be lower. This will allow you to charge a more practical rental rate for your property that will accumulate decent cash flow right into your pockets.

Out with the old (way of investing) in with the new (real estate investing).

It’s not a small step. It’s an investment in every sense of the word. That’s why it is crucial to have the right team surrounding you with all the resources you need to make smart money moves. If you haven’t read our series on how to build wealth through real estate investing, you can find it here. If you need a team to look into your current investment plan, or help you create one, you can contact us any time of day. We’re excited to grow with you!