Are you in a financial Catch-22?

[Account Closed]

You buy your first rental property and you have lots of equity to buy another, but you discover that your write-offs on the first property have lowered your income so much that no mainstream lending institution will lend you money. It will take about eight years for the cash flow on the property to give you the income you need to buy another home. You turn to private lending sources, but they want three, four or five percent more for a cash-out refinance loan -- even though the entire loan is collateralized. You're in a Catch-22. The more property you acquire, the more your income drops on paper, even though you're reaping big rewards via appreciation and principal payments. What you really need is a property that produces a high cash flow, but those cost a fortune. Do you have any options other than obtaining funding from a high-interest lender?

[JD Martin]

The problem you have, as stated, is that you're not reaping anything until you sell. Until that point, your "rewards" are only on paper. That's why most (not all) investors look for cash flow as well as long-term appreciation. Cash flow is what builds your business now. Appreciation is what goes into your long-term wealth creation. On paper you might have a bunch of gold nuggets, but without those properties generating cash flow it's all hypothetical until you sell. 

The solution is buy some properties that have strong cash flow. If you only buy for appreciation you're really just looking for a place to park your money. You can't expect banks or anyone else to lend on speculation. They want to see results.