How to grow a rental portfolio?

Question

Hi,

I have what I'm certain is a very basic question but I haven't been able to find a suitable answer.

Let's say I have a mortgage on the home I live in. Then, I obtain a second mortgage for my first rental property (I don't have the necessary cash on hand to purchase a property outright).

My question is: how do people then go on to grow their rental portfolio? A lender isn't going to allow me to obtain an additional (i.e. 3rd) mortgage, correct? It seems like I'd be stuck until I could pay off at least one of my existing mortgages.

I ask this question because I've seen numerous posts here from people who started out and then, somehow, obtained multiple properties within a year or two. I don't see how that is feasible unless they had a ton of cash initially or they used someone else's funds.

Thank you in advance for any clarifications you might provide.

-Dustin

Jim Pellerin · Answer

There are a number of ways you could accomplish your goal:

1. You need to find joint venture money partners. They provide the downpayment and mortgages.

2. Borrow the downpayment from a third party. Make sure you don't put yourself in a negative cashflow because of all the debt.

3. You could get the owner to hold back a second mortgage.

4. You could do a lease option with a motivated seller.

5. You could do a "subject to" with a motivated seller.