When investors consider buying and financing Residential real estate to keep for both long term appreciation as well as monthly cash flow, the conventional approach is the most common method of leveraging. Standard financing allows for investors to purchase and finance rental government loans for rental propertyproperties accompanied by a 20 to 25 percent down payment.

Government-backed fare of the VA, FHA and USDA variety are only available for owner-occupied transactions and are not designed to finance investment real estate. Yet there is a loophole.

Government-backed loans have an insurance premium financed by a mortgage insurance premium of one form or another. As long as the lender who issued the loan underwrote the file properly should the loan ever go into default the lender is compensated for all or part of the loss. Such loans are attractive to both lenders and borrowers due to this guarantee. Yet there is a way to finance a rental property with these competitive zero or near zero down payment programs as long as the property being purchased is a duplex and the investor intends to live in one of the units.

We’ve talked about this strategy in various applications but buying an investment property with no money down using a VA loan for those eligible or with 3.5 percent down using an FHA loan, a duplex purchase is not considered a rental property in the classic sense. This means lower rates, low or no down payment and better cash flow. Rates for traditional investment property loans can be as much as one-quarter percent higher compared to a rate for a primary residence.

These government loan programs have certain restrictions so make sure you’re clear of the opportunities before you get too far ahead of yourself but it’s a popular option for those in the know. If you think this might be an option for you now or in the future, pick up the phone and talk to your loan officer to see if you qualify. If you do, then your next call is to your real estate agent.