I started buying rental properties last year and purchased two in my area that have been profitable thus far. I am looking to purchase another property but the house only costs $27k and I cannot find conventional financing for it. I am considering taking out a personal loan from a bank at about 8.5% interest to purchase the home as well as make the necessary repairs (~$5k). The term of the loan would be 3-5 years, which makes my cash flow go negative, but after the three years it would produce roughly $400-$450 per month in profit (after taking into account maintenance and vacancy). I do not have the money to buy the house cash. Should I take out the personal loan and use the profits from my other rentals to pay the loan back ASAP, or should I seek another means of financing, or should I hold off until I accumulate enough funds to pay cash, or find another home that I can purchase with conventional financing?
If you asked this of 10 different people, you'd probably get 10 different answers.
I'm weary of buying with negative cashflow. What happens if the house is vacant for a few months. Do your other two properties have enough cash flow to cover this third property?
I would find a lender in your area that would be willing to give you a loan that covers all three properties. This would make the loan high enough to appeal to the lender.
Howdy @Max Briggs
I agree with @Sam Grooms that you are going to get a wide variety of responses. It totally depends on each persons investment goals and preferred strategies. I do not like negative cash flow for any reason. I want each property to stand on it's own. So, I would want better financing or look for another property that will cash flow with financing. Paying all cash does not work for me unless I can refinance to get my cash out. I like good COC Returns.
I was able to find a lender willing to offer a conventional mortgage. Pushes my cash flow positive and solves my problem. Thanks to all for the input.