An investment purchase is a different transaction from a home purchase, and this page belongs to the investment side of that line.
Some buyers reach this site to live in a home and others to rent one out, and the difference between them is not temperament. It is the loan, the reserves, the insurance, and the way an underwriter reads the rent. Everything below is written for the buyer who intends to hold and rent.
Buying to live in a home and buying to rent one out are different purchases, and telling you which one is yours is the first useful thing this page can do.
Most people who arrive here are buying a place to live in, and that purchase deserves its own path rather than a paragraph borrowed from an investor's. If that is you, the starting guide walks the sequence in order, and the eligibility page sets out which loan paths are open to you before anybody pulls a credit file.
If you are buying a property to hold and rent, the rest of this page is yours. Teal Apex Homes keeps a separate path for each kind of buyer because the two purchases are underwritten differently, insured differently, and lived with differently. Nothing below assumes you have done this before, and nothing below assumes you have not.
A lender treats a property you will not live in as a different risk, and the terms shift the moment you say so.
None of what follows is a penalty aimed at you. Each of the six is a lender pricing the fact that a tenant, and not you, is the person who has to keep the building occupied and the payment current.
- The equity contribution rises, and it rises far enough to change which properties you can reach.
A house you will live in can be financed on programmes written to get owners into homes, while a loan on a property you will not occupy is written around a substantially larger contribution from you. The precise expectation belongs to the programme and to your file, and a lender states it in writing before you shop rather than after you find something.
- The interest rate carries a spread over what the same borrower would be quoted on a residence.
Lenders price occupancy risk, because a borrower under pressure pays the note on the house where they sleep before the note on the one they rent out. That spread is real, it moves with the market and with your credit and equity, and no page can responsibly post it as a rule.
- Reserves are counted, and they are counted in months rather than in good intentions.
An investment file is expected to show liquid funds still standing after closing, measured as months of payments on the property you are buying and sometimes on everything else you already own. How many months depends on the programme and on how many financed properties you hold.
- Rental income helps you qualify, and the lender does not count all of it.
Underwriting takes a documented market rent or a signed lease, applies the reduction the programme specifies for vacancy and maintenance, and only then adds what is left to your income. A lease in hand is not the same as the full rent in the file, and that is the surprise that catches most first purchases.
- Insurance changes shape the moment the building is a rental rather than a residence.
A landlord policy handles the structure, the loss of rents, and liability differently from a homeowner policy, and on the Front Range the hail exposure sits underneath all of it. The premium and the deductible structure both belong in your model before you write an offer, not in a phone call after the first storm.
- Occupancy is a term of the loan, and it is the line people most often talk themselves past.
Signing a primary residence note means certifying that you intend to live there, and that certification runs to the lender and, on a government loan, to a federal agency. Circumstances change after a closing and the rules make room for that, which is a different matter from signing a paper you never meant to honour. If you are buying to rent, the file should say so from the first conversation.
Every difference above is real, and every one of them is quantified for your specific file by a lender rather than by a website, which is why you will not find a rate, a percentage, or a reserve count printed here as though it were a rule. The Consumer Financial Protection Bureau publishes a plain guide to the mortgage process that is worth an hour before you speak to anyone. The CFPB guide to owning a home
A building of two to four units that you occupy is financed as a primary residence, and that is the largest structural advantage available to a first investment.
The same four unit building is two entirely different transactions depending on where you sleep. Bought as a pure rental it is underwritten on the investment side, with the larger equity contribution, the reserve count, and the rate spread described above. Bought as your residence, with you living in one of the units, it is financed on primary residence terms while the other units pay rent toward the note you signed.
That is a structural advantage rather than a clever manoeuvre, and it is the single most reliable way a first time investor reaches a property that would otherwise sit well out of reach. It is also the reason a two to four unit building is worth looking at even when a single family house is what you pictured.
The trade is neither hidden nor small, so let me state it plainly. You live there, and living there is a condition of the financing rather than a formality you sign past on the way to the keys. You share a wall with your tenants, you take the call when a water heater fails on a Sunday evening, and your home and your investment are the same building for as long as the occupancy requirement runs. People who want that trade tend to do well by it, and people who resent it tend to sell early and at the wrong moment.
Model a two to four unit purchase in the underwriting instrument
A VA borrower may purchase a property of up to four units and occupy one of them, and the certification that you will live there is a legal undertaking.
The entitlement arithmetic, the funding fee schedule, the county limits, and the appraisal rules are all set out in full on the military desk, and repeating them here would only create a second copy that drifts from the first. What belongs on this page is the shape of the opportunity and the weight of the condition attached to it.
The opportunity is that the same structure which lets a qualified borrower buy a house with no down payment can also reach a small building, provided you occupy one of its units. The VA Lenders Handbook asks for occupancy within a reasonable time after closing, which lenders generally read as sixty days, and defined circumstances allow longer, including a spouse satisfying the requirement during a deployment or a set of orders.
The weight is that you certify occupancy at closing, and that certification runs to your lender and to a federal agency. It is not a preference you can revise quietly once the movers have gone. If your orders or your plans mean you will not be living in the building, that is a conversation to have before the offer is written rather than after the note is signed.
Entitlement, the funding fee, and the county limits on the military desk
Cap rate, cash on cash return, and debt service coverage each answer a different question, and knowing which is which is most of the skill.
A calculator will hand you all three in a second, and a figure you cannot explain to yourself is worth nothing at all. So here is what each one measures, in words, before you go and watch the model compute it.
Cap rate reads the building with the loan taken off it.
Net operating income divided by the price, financing left out entirely, which is exactly what lets you set two buildings beside each other when they would be bought with two different loans. Because your loan is absent from it, a cap rate tells you nothing about what you will actually bank.
See the cap rate the model returnsCash on cash return reads your money rather than the building.
Annual cash flow after debt service, divided by the cash you actually handed over, which means the equity contribution plus closing costs plus whatever the property needed before a tenant could move in. This is the figure that answers what this particular purchase, on this particular loan, does for the money you put into it.
See the cash on cash return the model returnsDebt service coverage ratio asks whether the building pays its own loan.
Lenders shorten it to DSCR, and it divides net operating income by the annual debt service. A portfolio lender leans on it because the answer does not depend on your salary, which is the whole reason a category of DSCR loans exists at all. A reading above one means the property covers its own debt with something left over, and a reading below one means the shortfall comes out of your pocket every month. The underwriting model on this site tests coverage against 1.20, which is the level most portfolio lenders look for.
See the coverage ratio the model returnsThe 1.20 coverage figure quoted above is the target written into the underwriting model on this site, reported there as the level most portfolio lenders look for. It is a screening threshold rather than a promise, and the lender who reads your file sets the one that governs your loan.
A deal that works only in the good year is not a deal, and the bad year is where I start reading.
I care more about how a property behaves in its worst twelve months than about how it looks in its best, because the worst twelve months are the ones that decide whether you keep it. What follows is the list I actually work through, and the last two entries are the ones people from outside Colorado have never had to price before.
- Vacancy is a rate rather than an event, and it belongs in the model on the first pass.
A unit standing empty between tenants costs you the rent while every carrying cost continues on schedule. Model it as a share of the year rather than as something that happens to other landlords, because the year it happens is the year that decides the whole return.
- Turnover costs considerably more than the empty weeks it creates.
Paint, cleaning, a fresh listing, a screening, and the small repairs a departing tenant finally reveals all arrive at once, and they arrive on a schedule set by somebody else's life rather than by your budget year.
- Capital expenditure is not maintenance, and treating the two as one is how a spreadsheet lies to you.
A roof, a furnace, a water heater, a sewer line, and a set of appliances each have a life, and each of those lives ends on a date you do not choose. Setting money aside every month against those replacements is the difference between a bad month and a bad year.
- Hail is the Colorado line item that startles people who bought rentals somewhere else first.
Hail is the largest single insurance factor on the Front Range. It replaces roofs across whole neighbourhoods rather than one address at a time, it moves premiums for everybody in the area afterwards, and many policies here carry a percentage based wind and hail deductible together with roof coverage that depreciates by age. The age of the roof and the language of the policy are both readable before you buy, and both belong in the underwriting.
- An association is a second set of finances that you do not control.
Dues rise, reserves run thin, and a special assessment arrives on a schedule set by a board you have never met. Colorado's Common Interest Ownership Act entitles you to a document package covering the budget, the reserves, the insurance, and the minutes, so a building with a serious reserve study can be told apart from an identical building without one before you are committed.
- A property that clears on a spreadsheet and a property that clears after a bad year are not the same property.
Run the model twice, once with the assumptions you like and once with a longer vacancy, a turnover, a roof, and a dues increase all landing inside the same twelve months. My position is plain, and I will say it to you across a table: a deal that works only in the good case is not a deal, and I would rather you saw that on a screen than learned it from a bank statement.
I hold rental property myself, which is a reason to examine the model rather than a reason to take my word for anything.
I own rental property in Colorado and Georgia, and I underwrite my own purchases with the same model that sits on this site, which is why I will show you the case against a property as readily as the case for it.
What I am not going to do is tell you how many doors I hold or what any of them returns, because a figure like that is a sales instrument and it would tell you nothing whatever about your purchase. What it does mean is that the questions on this page are questions I have had to answer with my own money, so the reserve line, the hail deductible, and the vacancy assumption are not abstractions to me.
The choice of property remains yours in every case. My work is to put the evidence in front of you, including the evidence that argues against the building you have already decided you love, and to keep saying so while there is still time for the argument to matter.
Bring me an address and I will read it with you
I am a real estate broker associate, and some of the questions every investor asks belong to somebody else.
Naming a limit is more useful to you than a confident answer from the wrong professional, so here are the three places I stop and who I send you to instead.
- Tax treatment belongs to a certified public accountant.
Depreciation, the rules that govern what a rental loss may offset, the deferral available on a like kind exchange, and what any of it does to your particular return are questions with real money attached, and the answer changes with facts I do not hold. I will happily sit in that meeting with you, and I will not run it.
- Entity structure belongs to an attorney.
Whether to hold a property in an entity, how title is vested, what the loan documents say about a transfer, and how insurance follows the change are legal questions rather than brokerage questions. The wrong sequence here can conflict with the terms of the loan you just signed, which is a reason to ask before closing rather than after.
- Landlord obligations belong to an attorney or to a qualified property manager.
Colorado imposes real duties on a landlord covering habitability, notices, the handling of a security deposit, and the procedure that must be followed to recover a unit. Those duties are a category I will always name for you, and summarising them on a marketing page would be neither useful nor lawful for me to do.
Each of those is a real consideration rather than a footnote, which is precisely why I name them instead of answering them. My licence and my regulator are matters of public record, and the Colorado Department of Regulatory Agencies is where that record is kept.
The Colorado Department of Regulatory Agencies
Brokerage services are provided through Real, the employing broker. Nothing on this page is tax, legal, or investment advice, nothing on it is a loan offer or a commitment to lend, and the written agreement governs wherever the two differ.
None of these asks you for anything, and any one of them will tell you more than another evening of reading.
You do not have to be ready to buy to do any of the three, and you do not have to tell me which building you are looking at before you run the numbers on it yourself.
Underwrite a real address before you speak to anybody.
The investment model runs entirely in your browser from the twelve inputs an underwriter starts with, and nothing you type is sent anywhere or asked to become an email address.
Open the investment modelRead the eligibility paths while the purchase is still an idea.
Knowing which loan paths are open to you shapes which buildings are worth touring, and that is a far better order to do it in than finding a property and hoping the financing follows.
The eligibility pathsBring me a property, a question, or a spreadsheet you do not trust.
A first conversation costs nothing and commits you to nothing, and it ends with a written note of what we discussed and which figures we agreed to verify next.
Start a conversation