Best way to finance rental property

[fastfredracing]

I am nearing competion of a renatal property. I would like to purchase another . The first property is owned clean and clear. What would be the best route one should take to aquire funds to purchase his next property?. I really dont want to take out a mortage. Should I just take a equity loan on this existing property?? A personal loan borrowed against the owned property maybe? Any advice would be appreciated. The next property will be of a fairly low value, and If possible, I would like to hustle on the loan, and Pay it off in about 5 years.

[turbo6bar]

Find a small bank with which to build a relationship. I think you will have a tough time pulling equity out of the first property. The ideal setup is a line of credit, which is then rolled into fixed financing after repairs and seasoning. Sounds like you are really moving. You can find some deals now. jurgen

[fintstone]

If the first property is owned outright (paid in full), he should have no problem pulling out 70% equity if his credit is good.

[911Rob]

Get a personal line of credit. PLC.
Good Luck, great decision!

[pwd72s]

If the property you're looking at is fully owned by the seller, you might ask if he's interested in carrying the paper himself. I did so when I bought a rental, then later agreed to carry a contract on some commercial property I sold. Why not? Doing so lowered my capital gains rate, I got 20% down and the now obscene interest rate of 9%...wrote the contract so they can't pay all off in a single year...max payoff 20% in any calendar year. Contract said I could raise the interest rate to a %age figure beyond a bank's home loan rate if intest rates climbed. Nothing in the contract allows below 9% interest.

[fintstone]

I have also used owner financing to buy a home that was already paid off...and that worked quite well. I am curious why you guys would not mortgage the first rental property for the money when it is finished. He should be able to get about 70% of the appraised value at a good interest rate and can write off the interest payments as an expense against the rent received. If he waits until it is rented, he can use the rental income to help qualify. I have done this and it seemed to work well. What am I missing?

[turbo6bar]

fint, if the title has not been seasoned for 12 months, he may have difficulty extracting equity. It all depends on the numbers and timing.

[KFC911]

I'm "small potatoes" compared to some, but have used a HELOC (on my primary residence - no mortgage, paid off) to purchase two other rentals (not at the same time), and promptly paid them off within a few years also. I keep that HELOC open for just that reason...

[Steve Viegas]

Keep in mind, if you pull money out of your home, it becomes a securitized loan.

[KFC911]

Steve is absolutely correct. I did it that way because it was "easy" to get the HELOC on my primary residence many years ago when I was refinancing (before my mortgage was paid off). I've since used it because it was "there" & convenient, and I could have covered the HELOC in other ways if I had needed to. I would think "long & hard" about using my primary home as leverage (for ANYTHING, including rental property) otherwise, 'cause I'm an advocate of being debt free whenever possible (particulary in these economic times).

[turbo6bar]

I actually like pulling equity from the primary residence. It makes you think long and hard about the deal. You won't throw your bucks into a stupid buy, but that's just a fool talking, because many folks just throw HELOC cash into depreciating assets like cars and toys. Why do something boring like buy rental properties?

[KFC911]

Originally Posted by turbo6bar

I actually like pulling equity from the primary residence. It makes you think long and hard about the deal....

In retrospect, you're probably right. Sometimes I screw up and do good by accident

[berettafan]

i hate to point out the obvious but if it's secured by r/e then it's a mortgage. doesn't really matter what the terms are.

my rule is this; 20yr amort. must be darn near covered by easy to get rent (not pie in the sky projections) and i must be willing to drop a hundred or two/mo for taxes, etc.

agree find a local bank and show them the above figures.

[KFC911]

Originally Posted by berettafan

i hate to point out the obvious but if it's secured by r/e then it's a mortgage... .

Of course you are correct. However, securing a mortgage using the rental property itself as collateral requires MUCH more "time & effort" and costs significantly more in the long run. The way I operate, (after thinking "long & hard" about a purchase), it's simply a matter of writing the check

[Carrerax]

Another option is to buy my 4 rental houses from me and I can land contract them to you