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FHA 75 Rule (concrete, tactical)
FHA loans let you buy with as little as 3.5% down if you live in the property. But here’s the catch: when you try to use rental income to qualify, lenders only count 75% of projected rent. That’s the FHA 75 rule.
If the unit could rent for $1,000/month, only $750 is added to your qualifying income. This can make or break whether you get approved. Beginners miss this, run their numbers wrong, and get blindsided at underwriting.
Takeaway: Always run your financing numbers using the 75% rule if you’re planning to house hack with an FHA loan.
👉 Pro tip: Lenders will often require a signed lease or an appraiser’s rent schedule (Form 1007). Don’t just pull Zillow numbers—document the rent properly or the underwriter will reject it.
2. House hacking (strategy that lowers risk + builds equity)
House hacking is living in one part of your property while renting out the rest. Think: buy a 4-plex, live in one unit, rent the other three. The rents offset your mortgage, sometimes covering it completely.
It’s one of the safest ways to get into the game because your tenants are paying down your loan while you build equity. You also qualify for owner-occupied financing, which is cheaper than investor loans.
Takeaway: Your first deal doesn’t have to be a burden—house hacking can let you live for free while stacking equity.
👉 Pro tip: Screening tenants is even more critical here—they’ll literally be your neighbors. Don’t just take anyone with cash.
3. DSCR (Debt Service Coverage Ratio) lenders vs. conventional banks (financing nuance)
Conventional banks qualify you based on your personal income and debt-to-income ratio (DTI). That’s a huge roadblock if your W-2 income is low.
DSCR lenders (Debt Service Coverage Ratio) don’t care about your job income—they care about whether the property’s rent covers the mortgage. If the deal produces enough cash flow, you qualify.
Takeaway: Conventional financing is cheaper, but DSCR loans open doors for investors who don’t fit the traditional W-2 mold.
4. CapEx reserves (most newbies ignore this, and it kills them)
CapEx = Capital Expenditures. These are the big, ugly expenses like a new roof, HVAC system, plumbing, or windows. Most beginners ignore them, spend all their cash flow, and then panic when a $12,000 roof bill shows up.
Professionals always set aside reserves—usually $250–$300 per unit, per year—for CapEx. It’s not optional.
Takeaway: Don’t touch your “profit” until you’ve set aside money for inevitable big repairs.
5. Local zoning codes / permitting bottlenecks (non-sexy but very real)
Zoning codes decide what you can legally do with your property. Permitting bottlenecks decide how fast (or slow) you can execute your plan. Investors who ignore this lose time and money.
Example: Buying a duplex with plans to add an ADU, only to find the city won’t allow it. Or a “quick” renovation stalls for 9 months because of permit delays.
Takeaway: Before you buy, check your city’s zoning maps and talk to the planning office. This step alone saves you from deal-killing surprises.
6. Debt-to-income & how lenders actually underwrite you
You might think you qualify for a loan based on your salary, but lenders see the world differently. They calculate your DTI ratio: all your monthly debts ÷ your gross income.
If your DTI is too high, you’re dead in the water—even if you have cash saved. Lenders also stress-test your finances with reserves, job history, and credit profile.
Takeaway: Know your DTI before you shop. If it’s over ~43%, start paying down debt or look into DSCR loans.
7. Exit strategies (why pros buy with 2–3 ways out, not 1)
Amateurs buy with one plan: rent it out and hope. Professionals buy with at least 2–3 exit strategies.
Example:
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Plan A: Long-term rental.
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Plan B: Sell if the market pops.
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Plan C: Convert to Airbnb if long-term rents underperform.
This flexibility keeps you safe no matter how the market shifts.
Takeaway: Never buy a property unless you have multiple ways to win.
Real estate rewards the prepared
The investors who last aren’t just buying buildings—they’re managing financing, reserves, zoning, and strategy like chess players. Learn these fundamentals, and you’ll be miles ahead of most first-time investors.
