These people tend to tell that the key is to use capital that’s not your own – like from a bank. I understand how it works with common mortgage. But let’s say I already have a mortgage, thus own one property/real estate. Now I’m in debt towards the bank and they’re not giving me another loan to buy another flat since I need to be repaying the first one (?).
So, how does it work? Where do these people get the needed money to buy the second property? The third one?
In: Economics
These are mostly wrong.
For an investment property banks will want 20% – 30% down payment. They will use the rental property as collateral. They will want to see that the house will cashflow relative to the mortgage. They will look at the entire net worth of the individual(s) asking for the mortgage, which is more in-depth than a regular mortgage. They will make sure the investor(s) have the “financial wherewithal” to pay the mortgage even if the property is vacant. You will sign a personal guarantee, meaning you are personal liable for the debt and they can take your primary house if you don’t pay.
Once you pay down 1 house, you can use the income and equity to boost your financial position to buy more, and once you have a relationship and good track-record with the bank they may start to loosen some requirements
TLDR: you need to be in good enough financial shape that you can afford multiple mortgages.
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