How to move up from wholly owned properties to a 50% leverage position?

2 Replies

Hi there!

I have fully owned and successfully rented 3 properties in Texas for 2 years.

I have heard advice all the way from "no loans!" to "borrow everything possible!"

I have decided that I now want to try adding property such that I keep 50% equity overall. 

I know the area of southwest Florida that I want to buy in and have been studying it. I have also read quite a lot about real estate loans. But nothing has been clear about "using my equity".

The choices I can see are:

1)Sell one TX house, 1031 the proceeds into 1/2 the price of 2 different houses and apply for 2 different loans. I would then supply my 2 yrs IRS returns which only have investment income from my rentals on them. Better make sure that the new houses are ready to rent soon! Would the banks say "Hey, you just sold one of these houses, we cannot use this entire amount as income."?

2)Take a loan against 1 of the TX houses (maybe 70/80% of its value, maybe 4% interest-if it's 8% use less value) use this to make 2 down payments on 2 FL houses (hopefully short sales or motivated seller in good condition) and get them rented to cover the loans and expenses and maybe a small cash flow.

3)Maybe try to buy a Home Path Investor house also/instead (but I am wondering if they tend to be overpriced)

I recently got a sales job so I will not have to be completely dependent on my rental income (but it sure has been fun!)

What do I say/ not say to the Credit Union when I go to pre-qualify for a loan?

Thanks so much!

@DawnRaye Cain probably a great option for you would be a "blanket loan" which you can put across all 3 of your properties and pull out as much equity as you want up to 50-70% depending on your bank.  Ask around as all banks won't do them, they should be classified as a commercial loan, but definitely there will be some.

Make sure when setting it up that you are able to sell each of the houses individually within the blanket and they will allow you to get a clean title without breaking the blanket loan apart.  

Your return on investment will be higher when you leverage your investment with a loan as long as the loan's costs aren't too high.  There are calculators online that will show you difference in ROIs when you use loans.

Best loan terms will be for LTVs up to 65% of the value of your properties. The cheapest money is going to be from a credit union. They will look at your income to see that you can pay the debt back. Each credit union has it's own terms. You can always get a private money loan (typically 8.5% annual interest rate on a 30-year amortized loan with 1 point upfront with a maximum 65% LTV with a middle FICO score of 650).

God Bless You!

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