Leverage

8 Replies

Mechanistically, how does one leverage existing rental properties in order to secure more money for down payments in a buy and hold strategy?

@Eric Taylor  My favorite way is to refinance the property and pull out equity.  Granted this more easily works in an upward market and you need to control your monthly cash flow.  Always compare how much of a return does the money make now vs in other options.  My last piece of advise is to always have a minimum cash flow on a property you are not willing to go less then.  You need wiggle room for changes in market rent.

@Kyle Karges  Your suggestion is A+, but only works on currently leveraged properties.

@Eric Taylor  If you don't have any debt on the properties, you could wrap-around (using the unencumbered property as collateral in another purchase).  This is generally easier to do with credit unions or local banks.

This may seem like a stupid question but how can you take money out of a mortgaged property that has appreciated without effectively increasing your mortgage note?

Originally posted by @Eric Taylor :

This may seem like a stupid question but how can you take money out of a mortgaged property that has appreciated without effectively increasing your mortgage note?

 Sometimes your original Note might stay the same, but with a SECOND Note added (at a higher interest Rate). When refinancing, investors prefer to, yes, increase their Mortgage Note - at equal to or even LOWER interest rate than it was to start off with! Why not? Cheers...

@Eric Taylor    To answer your 2nd question... you cant. You should be able to get a loan at 80% Loan to Value. They will pay off the existing 1st mortgage, give you a new 1st and give you the difference. i.e. the house is worth 100k you owe 60k, you get a new loan for 80k and a check for 20k to invest as you see fit. BUT be careful as @Kyle Karges was saying... you dont want this new loan to have such a high payment that it cuts too much into your cashflow. A little decrease in cashflow is okay because you are going to take your 20k and buy another property there by increasing your cashflow above your original starting place.

This will only work if you can pull enough out of your existing properties to buy another one. 

Last note, consider the amount of money you are getting VS closing costs. Paying 5k in closing costs just to get 5k out... isnt worth it... in my humble opinion.

Awesome insight.  So to use an example.  I purchased a property for 300K that rents at 2100 per month and I put down 30%.  That property has now appreciated to 411K.  So I can possibly withdraw 60K minus closing costs to use on another transaction although my new loan will be for 360K.  Is this correct?

@Eric Taylor  If you only borrowed $210k in the first place you would be pulling out ~$150k if the Bank will let you have $360k owing! (I prefer $150k in my hands than $60k, any day)!

But will the bank, or your pocket, be comfortable with you owing $360k being (only) supported by a gross income of $2100/m (less say, 50% expenses)? Cheers...

Originally posted by @Brent Coombs :

@Eric Taylor If you only borrowed $210k in the first place you would be pulling out ~$150k if the Bank will let you have $360k owing! (I prefer $150k in my hands than $60k, any day)!

But will the bank, or your pocket, be comfortable with you owing $360k being (only) supported by a gross income of $2100/m (less say, 50% expenses)? Cheers...

Thanks

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.