Hello, relatively new investor. I've been researching strategies, flips, brrrr etc. My question about getting loans with debt. It seems if you build doors, you stack debt. Obviously your renters are paying for the property, plus your cash flow. Do you run your loans out full time say over 15 or 30 years? Or do you pay them off early? I'm just confused on the fact if you have, say 40 doors that positive cash flow , that in 20 years you would be in an awful amount of debt if you ran the loan out full term. And say you have 40 doors, debt still on them, will a bank still want to finance. I understand the doors will differ with single family homes, duplex etc. Just kind of wanting a general answer to help me understand better.
Hello Jacob! I'm not sure what you are asking so I hope my answers will work for you. If you do not have a good credit score there are other ways to qualify for a loan. One way comes from your experience, it might matter on your lender requirements or what type of lender are they might matter. There's owner financing which could help you. if you own other properties you could use their equity that is that could be used towards your new property down payment That could make your financial statement look better. Your equity could be used to loan payback or a down payment. Positive cash flow can be used the same way like equity can.
You could find a "cash rich" Partner whose funds could make your deal work but you will have to give up part of any profit. It may have to be a Hard Money lender that is usually has higher loan rate interest, points. and total fees but also a short term loan so make sure it's a "value add" property that should help you get long term financing. There is nothing wrong with more dent if that property will give you each month. Hand them clearly stated with your applications. it's location might help you or the more motivated the owner/seller could help. Just be as creative as you can. The better the deal looks, the easier a loan could be. Good luck to you!
Thanks for the reply! Sorry about the jumbled question haha. What I mean is over a long term strategy, are you paying your 30 or even 15 year term off early with part of your cash flow?
I think you're asking the wrong question @Jacob Thomas Steelman . The question should be: CAN you successful keep a property through the entire 30 year term and not be over leveraged if you don't pay it off (presuming you don't refi). Most banks at best will only allow you to put as little as 20% down with your tenants paying your mortgage down. From there it depends on your comfort level. Some people let it pay off over time, some people are more aggressive with paying it down. As you add doors, sure your overall debt increases, but it's still a matter of your own comfort level. There's no right or wrong answer.
@Jacob Thomas Steelman If you are asking if people pay off early, yes. Some people feel more comfortable if they have little debt. Others want to leverage (go into debt as much as possible) in order to cash flow as much money as they can. Others play the appreciation game where they buy low sell high 5-10 years later. Depends on your strategy and what you feel most comfortable with.
@alex Olson and @odie ayaga Thank you for your replies, those were the answers I was looking for. So I will just play it at my comfort level and adjust my strategy to fit.
@Jacob Thomas Steelman the more I thought about it the answer better than my last or to add to it is once you start buying, the problem will solve itself. It's like worrying what you're going to do once you have 10 million dollars, figuring out all the steps along the way will make that easier to determine when the time comes.
@Odie I can appreciate that answer and it makes sense to me as well. I'm kinda running thru strategies right now and that just seemed to be a re-occuring issue in the strategies I'm considering other than flips. But I can see where I'm maybe trying to micro manage way to far ahead.
I think the main pillar of this question is the difference between good debt and bad debt. Which over simplified can be answered by, is this debt helping to increase your wealth?
If you're looking to build a rental portfolio, you're going to need to take on a lot of debt, unless you have an enormous nest egg to tap into. You'll need to close in LLC's as your grow so that everything does not show up as your personal debt.
Most of these types of loans never fully amortize. This means that they will be 5-10 year loans on a repayment schedule of 20-30 years. At year 5 or 10 you'll need to refinance. At this point, you can either just look to transfer the debt and continue to pay it down, or transfer the debt AND take out some equity to put cash in your hand.
What you do here depends on your strategy and the amount of risk you want. More debt equals more risk. More debt also equals more leverage to grow your portfolio.