Minimum down on every rung, or a bigger down payment so each conversion carries itself

Before choosing, it is worth knowing how the lender treats property one when applying for property two. If the lender offsets the vacated payment with only a percentage of the lease rent rather than the whole rent, then in structure A a $2,839 payment against $2,450 rent leaves a chunk sitting in the ratios even though the tenant is paying. In B it is a smaller chunk. That gap is what decides whether rung three exists, and it matters more than the $270 a month difference. Tender, did either quote come with the lender explaining in writing how they would count it? Lenders often give two different answers on two different calls, which is why it is worth getting the counting method in writing rather than planning around a verbal answer.

Your $2,450 assumes the house is rent ready the day you leave, which it won't be. Mine needed paint, a carpet replacement and a deep clean before I could ask top of market.

Worth putting a number on that. On rehab work of this kind, getting an owner-occupied house to a rentable standard after someone has lived in it a year runs $1,800 to $4,500 depending on flooring, and paint is the cheap part. If a structure like this is repeated annually, that becomes an annual line item, landing in the same month as moving costs and a deposit on the next place. In the FHA structure, that cost is being funded out of the cash saved by putting less down, which is the argument for keeping the cash rather than buying the payment down.

The reserve argument is the strongest one for A and it's underrated in this thread. $22,100 sitting liquid covers a vacancy, a roof and a bad tenant across two properties. The same money buried in equity on rung one covers nothing until you sell or refinance, and refinancing after you move prices as an investment loan.

But I've watched a fair amount of diligence go sideways on this exact point, so I'd say it depends on whether you're actually holding the cash or spending it on rung two. If the plan is to spend it immediately, you don't have reserves, you have a schedule. Every diligence question I ask on a stack like this comes back to what happens in the month where two things break at once.

An owner-occupant loan is often the cheapest capital available to anyone working through owner-occupied conversions, since rental financing rarely comes close to those terms. If the asset is a right to borrow cheaply, using it repeatedly while preserving cash is the stronger structural argument. The counter is that a low down payment structure like FHA financing may carry a mortgage insurance premium that never comes off, locking in a worse permanent payment in exchange for speed of entry, which is effectively the price paid for that cheap entry.

Question I should probably know already. Can you use FHA more than once in this sequence, or does it need to be a different program on each rung? I assumed you'd cycle FHA every year and that seems too easy.

Compass, generally these programs are built around one FHA loan at a time as your primary residence, with narrow exceptions, so most people cycling annually end up mixing programs across rungs. The exact rules and the exceptions change, so get that from a lender in writing before building the sequence around it. Tender, on these numbers, neither structure converts positive after reserves. Maintenance on a 1990s single family typically runs closer to 9 percent of rent than a 5 percent model assumes, so take another $220 off each. Structure A lands around negative $600 a month in a bad year and Structure B around negative $340. Carrying four of these, A becomes a $2,400 monthly problem and B a $1,360 monthly problem, which is why B makes sense on the first two rungs, with more aggressive terms once rent has moved.

Reading this as the person who has zero properties and a family, the part that stops me isn't the $270. It's that either version means moving every year with two kids. Cobalt's negative $600 in a bad year would end my plan outright, so the low-down version looks less like speed and more like a thinner rope.

I built a spreadsheet for exactly this and the wall shows up at rung three or four in both structures, just at different months. Once you're carrying two vacated payments that your lender only partially offsets, your ratio climbs past what most programs will take regardless of how much you put down, and then the constraint is your income, not your down payment. In my model B bought me one extra rung. That's it. One rung for $22,100 and the insurance eventually coming off.

Which made me think the real variable is income growth, and neither poll option covers that.

Minimum down, every time, and I say that having eaten the insurance problem on one of them. Cash is the thing that lets you survive the ugly month, and equity in rung one has never once helped me at 9pm when a sewer line backs up. Pike's point about the wall is fair, but I'd rather hit the wall with three properties and money in the bank than with two properties and a clean ratio.