All Forum Posts by: Account Closed

Thanks for the responses, everyone. FYI, I purchased a seasonal rental in Sun City, AZ, for $139,000. The cash flow is about $500 a month (twice as much as I originally expected). The property also appreciated $11,000 in less than four months, at least according to general sales figures produced in the area. I have plenty of equity to buy another property, but my income still isn't high enough to get the lowest interest rates on a cash-out refi loan. I'm looking into private lenders. We'll see.

Wow, 5-10K for a house. That's amazing. I wish the Phoenix area had deals like that. Even in the poorest of neighborhoods, one would have difficulty finding homes for less than $30,000. Best wishes. -Dave

Hi Payton. Congrats on the home and cash reserves. The question of whether to borrow money for the next purchase depends upon your goals and resources. The general rule is that if an investor has little cash and wants to become wealthy in 10 to 20 years, then leveraging other people's money (obtaining a mortgage) is the (only) way to go. But if you have cash (as you do), paying in cash or leveraging are both options. The latter strategy would be employed if you want to buy more properties. You are only limited by the amount of income you make, as most lending institutions will only loan you money if they believe you have enough income to pay the mortgages. (The rental income on your new purchase cannot be counted.) By the way, don't forget you get to depreciate the property (over 27.5 years). On a $140,000 rental property, that's $4,000+ that can be deducted from your income at tax time (along with property taxes paid and interest if you finance). 

You buy your first rental property and you have lots of equity to buy another, but you discover that your write-offs on the first property have lowered your income so much that no mainstream lending institution will lend you money. It will take about eight years for the cash flow on the property to give you the income you need to buy another home. You turn to private lending sources, but they want three, four or five percent more for a cash-out refinance loan -- even though the entire loan is collateralized. You're in a Catch-22. The more property you acquire, the more your income drops on paper, even though you're reaping big rewards via appreciation and principal payments. What you really need is a property that produces a high cash flow, but those cost a fortune. Do you have any options other than obtaining funding from a high-interest lender?