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
> 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 (?).
If you have a down payment, sure they will. You can’t buy a rental property with a 3% or 5% down payment like you can a primary residence, but if you have 20% or 25% a bank will lend for a rental property where the rent can match the mortgage payments.
Some ways to get that amount might be regular savings, or perhaps you use the equity in your current home — take out a home equity loan and apply that money as a down payment for your rental. Or find investors/partners where you provide the sweat equity (finding property, managing property) and they provide the financing.
What real estate investors then do is snowball equity. You buy a $200k house with a $40k down payment and after a few years, sell it for $250k. With your initial down payment, the equity gain, and the mortgage principal pay down you now have $100k you can put down toward a $500k 3-unit building. Turn your $100k into $200k in equity and buy a $1m 8-unit building. And so on, over time.
Another way may be to buy that 2 or 3 unit home as you first home, living in one unit, then later on moving out and it being all rentals while you buy a new single family home for yourself.
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