Move each converted house onto investment debt, or keep the owner-occupant loans and fight DTI every time?

The 280 a month is what stops me reading further. My first rental hasn't even started and I already know an extra 280 is the difference between covering a water heater out of the account and putting it on a card. If house one is your steadiest earner, why is it the one you'd make thin?

The piece people get wrong is that an entity loan with your personal guarantee on it doesn't automatically vanish from how the next underwriter looks at you. Some will exclude the payment if the property and the debt sit in the entity and the rent covers it, some will include the whole payment because your name is on the guarantee, and agency-backed owner-occupant underwriting has its own rules about how much documented rent can offset. That spread between lenders is real and it's not something you can settle from a forum. @marlow, get the offset treatment and the guarantee treatment from the loan officer's underwriter in writing before you pay for an appraisal on a refi you might not need.

I'd keep the loans. You bought the financing advantage, that was the whole reason for living in each of those houses. Trading it away to buy speed sounds like paying twice for the same thing.

I did a version of this at four properties. Moved the two oldest onto investment debt, and the honest result was mixed. My ratio did drop enough to qualify for the next one, so the mechanism worked. What I underestimated was the closing costs, roughly 8,400 across the two, plus a three year step-down prepayment penalty on one of them that I now have to plan around if I ever sell. If I did it again I'd move one house, not two, and see whether that was enough.

@thicket that matches what I saw on a small multifamily refi. The rate spread was 1.6 points of interest and the prepay was the part I nearly signed without reading. On a two to four unit you also get reappraised as an investment property, which changed my insurance renewal quote the following year. Every unit teaches something and that one taught me to read the rider stack before the rate sheet.

I'm reading this twice and still stuck. What's DSCR debt, and how is it different from just an investment property mortgage?

@juniper DSCR stands for debt service coverage ratio. The lender qualifies the loan mostly on whether the property's rent covers the loan payment rather than on your personal income and ratios. It's still an investment property mortgage, it's just underwritten to the house instead of to you. Terms and pricing vary a lot by lender, so anything specific you read has to be checked against a current quote.

One thing nobody has priced yet: if the houses move into an entity, your insurance and your vendor paperwork change too. Named insured has to match, and I've watched a claim get slowed down badly over exactly that mismatch. Also the transfer itself has recording and possible transfer tax consequences that differ by state, and in some states it can trip a due-on-sale clause question, so that's a conversation for an attorney in your state rather than here.

Reading this whole thread with no deals yet and my main takeaway is that the third one is where the plan stops being about houses.

The occupancy year already caps you at roughly one a year. If the refi buys you a rung you were going to be able to do in 2028 anyway, you paid 8,400 and a rate to move it up eight months. I'd rather sit still and let rents catch up, though I hold land, so sitting still is my whole disposition.

@arbor that's the argument I find hardest to answer. The people I talk to who are building around this strategy always want the next rung this year, and I can never tell whether that's the math or the itch.

Let me put numbers on @arbor's point and see what's wrong with them. House one: 530 a month of gross margin over the payment before vacancy and repairs. Refi adds 280 of payment, so margin goes to 250, call it 3,000 a year of lost cash flow, plus 4,000 of closing costs on that single house. If that buys you a rung a year early, the rung has to produce more than 7,000 in year one net of everything, or you're behind. Most owner-occupant priced houses bought today are not producing 7,000 net in year one, which is the whole affordability complaint in this strategy. So the refi only pays if it makes rung four possible rather than merely earlier. @marlow, which is it for you? Are you blocked, or are you slow?

Blocked versus slow is the right question, @ledger. I refinanced two houses in a hurry last year because I was sure I was blocked, and then the property I wanted fell out of contract anyway. So I now own the higher payments and none of the benefit. Prepayment penalty means I'm holding both for another two years whether I like them or not.

Twelve years of holding tells me the loans you keep matter more than the properties you add. A cheap fixed payment on a house in a decent area is an asset that gets better every year without you touching it. I'd let the ratio slow me down and spend the waiting time paying the car and the credit lines to zero so the next application is boring.