Board Topic: Rental Property Loans
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Rental Property Loans

Posted by: Jason Clark Jan 15 2004, 12:37 PM
This is my situation, I live close to a college town, where real estate is constantly changing hands. I was thinking about trying to get a couple of rental properties. I own a home that I inherited, but would take way to much to get going, considering its location. I was wondering if I could use it as some sort of backing for buying rental properties? Does anyone have any advice?

Posted by: loanuniverse Jan 15 2004, 01:50 PM

Well just like any plan it has to start with a stated goal, and then manage the resources the best way possible to not only achieve the goals, but maximize them.

So lets see…. Your goal is not to purchase rental properties, your goal is not to manage rental properties, and your goal should definitely not be to get a loan to purchase rental properties {this is only a tool in my opinion}

If I had to guess, you would have a primary and a secondary goal. Probably even a tertiary goal, but I am probably stretching it too far. In your position, my goals would be as follows:

Primary Goal: To create a positive cash flow stream ”the largest possible that you can manage” from the ownership of one or more income producing properties.

Secondary Goal: To benefit from any asset appreciation from the properties purchased.

Tertiary Goal: To use the initial property or properties as a starting point towards increasing your portfolio of income producing properties.

You provided limited information as to what resources are available to you. A house is mentioned, but you say that the house is too remote to be used as a rental property effectively. The first thing that comes to mind is who is living in the house? Actually the first thing that comes to mind is whether the house is “free and clear”, but I will assume that it is.

Depending on the way that the house is being used, your credit, and your personal income; you will have access to some personal financing. You can go ahead and borrow some money and then turn around and use this money as a down payment for the purchase of a rental property.

The first step is talking to a lender in your area and asking for the kind of financing options available to you on the property that you own. Hopefully, you will have a lot of choices available and then you can choose based on terms and pricing.

Once you have the money or readily available money in the form of a commitment {HELOC}, then you can shop around for the property that you want to purchase. Now it gets a bit complicated since optimally you would like the property that you are buying to pay off all of the money that you borrowed {this includes the money that you borrowed for the down payment, and the rest of the money you borrow to complete the purchase}. In fact, you should take that into account before making a bid. Furthermore, any good lender would take all of the leverage into account specially if you tell them that you intend to borrow the down payment.

Hmmm, this is getting long so let me leave my answer at that. There is a lot more information in the site and in other real estate investment sites in the web. You want to look for information on “property valuations”, “net operating income”, “the way rental properties are financed”, etc. I would stay away from those “No money down!” investment seminars and similar “courses”. In my opinion, they make it seem easier than it is in real life. It is not that difficult, but it is not a cake walk either.

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