Yes, 75% of rent can be used. It is called "market rent", according to Fannie Mae. Remaining 25% is used for Vacancies, etc.

In California markets, rental properties are not profitable, when you consider 20% downpayment, 75% rent, etc.

There are 4 kinds of buyers in this market:

1. First home buyers: renters becoming buyers. 2. Second home buyers: thanks to the appreciation of their primary residence, people have bought second homes for "retirement nest egg", "return on equity", etc. Borrow 80% at 4.5%, expect 15% return. 3. Moving Up: same like (2), but they sell primary residences. 4. Flippers

It is kind of hard of flippers to get conventional loans; they have to use portfolio banks, banks that keep loans on their books. A bank I know of, offers 6% fixed first year, variable rate for the next five years. Flippers get these deals, after putting 20 to 30% down.

Right, flippers aren’t taking conventional housing loans on the properties they are flipping. They are getting short term lines of credit instead because they don’t expect to have the house for more than a few months.

I'm not sure what kind of flippers you are referring, but usually there are no loans. Cash purchases - 100% for the entire value of the property. Source: my parents are prof. flippers.

This is pretty unusual for anyone doing it seriously. I've "flipped" (not exactly -- mostly major additions and teardowns that we hold for 6-12 months) the past 5 years and haven't met anyone who exclusively uses their own cash. We use some of our own cash, but you have to look at the opportunity cost.

The interesting part has been the interest rates. We started out borrowing hard money at 14% and are down to 7-8% now depending on the lender. Lots of cash out there chasing returns.

No disrespect to your parents but if you leverage you can flip more homes. Higher risk, higher return. If you have the credit rating for it, interest only loans are how folks do that around the Bay area. I personally stay way away from that sort of risk.

Aggressive flippers. If you have enough cash to fund N home flips, someone will lend you money and you can do N + X flips in the same time (if all goes well....)

How many properties at a time can you flip with just cash? You also need to consider the cost of renovating the property, even professional builders need financing for those kinds of things. I guess you could do it out of pocket if the scale was small enough.

Things I learned from Donald Trump:

In most markets, rental properties are not profitable. Almost all of the profit comes when you sell the building, from appreciation. If you're breaking even on a rental, you're actually ahead of the game.

Heck, it doesn't really even have to appreciate... If the rental is done right you are having someone paying off the mortgage. It's just deferred income. I'm stuck with a rental where I used to live. I am under by $70 / month with the rent I'm giving but that parlays into $550 being paid a month on my principal by the renter. $550 for $70 isn't bad return. I'm not selling it because it's 3 years from paid off and it's in a slow mover location (would be on the market for 6-8 months). So I'm just waiting until I'm making $550 a month instead of the bank. Or I could sell it and get the sale price out of it once it's paid off. Which would be 18 years to make $120k on 15k.

I probbably should have sold it long ago but $70/month is like internet.

Conventional financing isn't available to heavily leveraged flippers as the loans aren't profitable. They usually use non-conventional loans with higher interest rates.

Now, they could re-finance the property into a conventional rental property but none of them can afford to do it for all of their properties. Flippers tend to do 4-5 at a time, not just one.

Notwithstanding what others have said here - I think it depends on the market and the lender. When I looked to add a second property, the lender refused to consider the rent being earned from the first property, saying "Your tenant could move out at any moment, so we don't include that as part of a borrower's income in making our decision."

What I suspect happens is that once you reach some number of properties, you become a commercial borrower, and different rules apply. A former coworker owned most of a street of duplexes at one time, and he had no problems getting loans.