Pros/Cons of Getting a Mortgage on Paid Off Rental Property?

7 Replies

Hey there,

Just wanted to get some feedback on exactly what the title says. I'm 17 years old and own one rental property in the Baltimore area. I was looking into whether or not I should pull out all of the equity I have in the property (100%) and get a mortgage, and then put the money acquired from that property into 2-3 other rental properties.

My main issue is, because I'm not yet 18, I don't have a credit score and am not sure if I'd be able to do such a thing due to no real credit history and no huge source of income aside from my rental income. Any suggestions would be highly appreciated! 

Thanks!

I was wondering if you could get a co-signer. I like the idea of taking out the cash (as long as you comfortably cash-flow after taking out the cash), and buying more properties. 

That's something I didn't even consider. I'll have to look into that! 

@Cody Copinger welcome to BP and congratulations on getting started so early. 

First of all you cannot pull out all your equity in the property. Lenders are not going to loan 100% LTV on a rental. Many lenders will not loan any more than you paid in the first 6 months to a years you own a rental.

Whether to use equity to buy more properties is an age old question and every investor has to answer that for him or herself.  Borrowing more will grow you income and wealth faster in many cases. However it does so with more risk. 

Many people like to do debt free investing. They sleep very well at night. 

Personally I don't look at it as an all or nothing choice. i believe in borrowing at conservative levels to moderate my risk but grow faster than I can with all cash. A good think to learn about and understand in debt coverage ratios. You should evaluate not on on a property by property basis but also a global DCR of your entire portfolio.

@Ned Carey Thank you for the informative reply. I suppose this is a decision I'd certainly have to sleep on and decide what feels best for me. I really appreciate the info on DSCR, it gives me a greater idea of whether or not the property I am interested in will be a good investment that cash flows enough to pay the monthly payments and perhaps leave some net profit.

Thanks again!

@Cody Copinger by the way just as BP is a great real estate forum, there are credit forums on how to build your credit.  Start now building your credit. One of the important factors in credit score is length of credit. Getting a credit card now will continually help your credit as you get older.

@Ned Carey I didn't think that I was able to start building credit as a minor, but I'd definitely be interested in starting now if possible!

Go to a credit repair specialist Company and get your credit where it needs to be in 3-6 months and then do the refi cash out

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