Financing

[Stacy Mcintosh]

Im looking to buy and hold property.This will be my first rental  I would like to pay cash but that is not an option right now. I was wondering what is the best way to finance a buy and hold? I thought about learning and starting in wholesaling to be able to pay cash. I feel like I want to make moves now. What should I do?

[Marcus Auerbach]

Stacy, paying cash is not necessarily a desireable thing - at least not if go strictly by the numbers. The reason is that it takes a lot of cash to buy a property, compared to the rent you will get: your ROI return on investment will not be that great.

Lets say you buy a $100.000 duplex in great condition and you get $750 per unit or $9000 a year minus $3000 for Taxes and Insurance leaving you $6000 in your pocket for $100.000 invested: your ROI is just 6%.

Now you go and get financing for the house. The bank gives you an $80.000 loan, which reduces you cash invested to $20.000. You still get $6.000 income, but with your lower investment your ROI jumps up to 30%.

And because you have $80.000 left you go and buy four additional properties just like the first one yielding another $24.000 ($6000 each). Now your total income is $30.000 with $100.000 spent.

If you are smart you keep your job for a little longer and take save the $30.000 as a downpayment for another duplex. And then rise and repeat.

One way to start out with is to buy a duplex for yourself to live in one half. Because the bank trust you much more that you will make your payments when you live in the house yourself they will finance 95% or more. You live in one half and collect rent for the other. This allows you to save more money to buy a second one and at the same time teaches you the process and you can see if being a landlord is right for you (it's not for everyone).