Personal and Loaned Money Investment

8 Replies

Hello Hello, fellow real-estate enthusiasts!

I'm a new face here so I thought it would be good to start a discussion and learn something while meeting new people at the same time.

So, let me explain where I come from. 

I'm Nuno and I live in Lisbon, Portugal. I'm currently developing my own business, outside real-estate (video gaming industry) and have no profit from there yet. So, I live off passive income from two rental properties that I own. 

Now, in March I'm selling one of the houses (only 50% mine) and want to reinvest the money back into real-estate, specifically into a two/three-bedroom apartment and I have two options:

a) buy one property with my own money and keep 100% of the cash flow (which I need); 

or

b) ask the bank for two loans, buy two-properties and use part of the cash-flow to pay off the debt.

I'm inclined to go for option b for obvious reasons, but I've never asked for a loan before, so I'm kind of nervous about the compromise. I think I can get enough cash-flow from the two new properties (plus the other one) to survive, but I sometimes feel that I might be stretching a bit much for my experience. 

What do you think?

Any advice on things to look out for, like commons mistakes or things people usually forget?

Thanks in advance to all of you who are taking your time to read this.

All the Best,

Nuno

Welcome to the site. Leveraging your money is a great option but you have to be careful of your LTV on each property. There are quite few investors right now that are buying a property all cash and doing a light renovation on it and then once the property is rented out they refinance and pull their initial cash back out of the property and then repeat the process. This can really help your LTV on the properties and you can do 3 or 4 in a year if you are working with someone who knows what they are doing. Best of luck hope it works out and if you need any help let me know.

Thank you, @John Mathewson .

So what you're saying is, that if I ask for the loan based on the property value after the forced appreciation caused by the rehab I could get a better LTV? Is that it?

In that case won't I have less cash flow because the loan amount is bigger?

Depends on how you look at it. If you are going to but a property that doesn't need money put into it or some type of rehab then for the most part you are going to be paying retail for the property. Maybe you get a good deal and end up paying 85-100% of what it's worth. 

If you buy a property that needs work you can buy it for 50-60%LTV then put some money into the rehab and now your all in for 70-80% LTV.

I don't think you will find the loan amount to be bigger again because if you're buying a property that doesn't need work you are already going to be paying more for it from the beginning. I believe you will be all in cheaper and lower LTV. Unless i'm missing something or not understanding correctly?

@John Mathewson

Oh, I see what you're saying! But I don't plan to to buy a house that doesn't need rehabbing. That's part of my plan already. 

The thing is, I could do the rehab with my own money and ask for a smaller loan because I wan't to pay less each month so I can get a better cash flow. Doesn't this make sense?

I understand now. Well that could work depending on purchase price of the house i know some lenders have a minimum. Then you just will have your cash you used for construction tied up in the property. Yes you will have a lower mortgage but you will also have less cash on hand and for the amount most guys are refinancing at right now between 4-5% I would think it's cheaper than having your own cash sitting in the house. 

Yes, you'r certainly right. I did the math and I would probably have double or more of my money in the house. So, I guess I just need to see if the cash flow difference is low enough that I can keep living off it. At the bank, they told that the interest rate of a mortgage to buy a new house is lower than doing a mortgage on a house I already own, but I'm not sure how much.

Thanks a lot, @John Mathewson . It was really helpful!

@Account Closed Anytime check with several banks as well everyone has a different specialty. Hope it works out if I can ever help let me know. 

@John Mathewson Ok, I will do that. Once again, thanks a lot for your help.

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