I hope to acquire 2 properties this year. We are currently working abroad, so we are looking to invest in a turnkey property as our first real estate acquisition. I want to plan for our second property. Can I borrow against the equity of the first property to put a down payment on the second deal? If so, how long after buying the first property can I borrow against its equity?
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
5y
@Jasmine Walker, typically, if you buy turnkey there is no equity (other than your deposit), so how will you qualify for your second?
If on the other hand you're intending to pay all cash for your first turnkey, I would argue that you've lost at least 25% of those funds as far as being able to borrow against them later. More likely, closer to 35-40%, gone.
Also, turnkey buys typically don't cash flow as well as carefully sourced bargain buys.
If your research discovers that the only way of getting positive cash flow out of turnkey is to have less than a 50% mortgage on it, then I suggest: that's not the right model/plan.
Am I missing anything? Congrats for asking though. Cheers...
Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
5y
@Jasmine Walker if you are buying turnkey it's gonna be a long time before you can borrow from a bank against the equity as max LTV on a cash out refi is usually 75%LTV and on a HELOC 80%LTV. It takes a while to build equity through appreciation and principal pay-down.
Rental Property Investor · Centreville, VA · Member since 2019 · 1k+ posts · 799 votes
5y
You can check with the local banks on getting a HELOC on your 1st property. There is no seasoning period with getting HELOCs so I would shop around to find a lender who is willing to process it for you. Good luck with the 2nd property.
Thanks for insight. I guess I will need to find another financing strategy for my second property. Or maybe turnkey isn’t the best initial property investment.
Rental Property Investor · Austin, TX · Member since 2018 · 43 posts · 41 votes
5y
Like others have mentioned turnkey doesn't sound like a good 1st property option if you are planning on tapping that equity to fund your 2nd deal. Even if you buy a single family home yourself in a good neighborhood that appreciates, unless you pay 30-50% down I don't see how you can build equity to fund your 2nd deal unless you have a few yrs of time frame in mind for the 2nd deal.