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
Banks are happy to lend you money under two conditions: 1) you demonstrate the ability to consistently pay back the loan, and 2) you have “collateral” in something that the bank can take from you to pay off the loan in the event that you can no longer pay it back.
Real estate property fulfills both of these conditions fairly well – if you own it and don’t live in it, you have the ability to rent it out for income to pay back the loan, and the property itself acts as collateral that the bank can foreclose on if you default. They will ask further that you put a down-payment so that you’re invested in the property and won’t just walk away the first sign of adversity, and likely they will want you to have a steady source of income that isn’t the property so that you can continue to pay it off if it goes vacant for a few months between tenants. But if you’re financially stable enough to own the property you live in and regularly pay that off, while still being able to save up enough for a down payment, it’s not super hard to get approved for a mortgage on a second property.
Once you have multiple properties to your name, it becomes even easier for the bank to approve further loans, as you have the income from those properties and an also use them as collateral
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