Buying For Cash / Refinancing Question
Hope someone can help me with this; I'm new.
I have access to enough cash to buy a good rental property. My preliminary plan is to offer all cash, and hope that the seller will take about 5k less than his asking price (I don't think this will be a problem).
I then plan to refinance for the value of the home and repeat the process. I have enough cushion, so that isn't a problem. My question is this:
I know that when I buy my 2nd rental, they will only allow 75% of the rental income to go to the mortgage when I refinance (I think I'm right--please correct me if I'm wrong..) If I do a 3rd this way, will the percentage of the rental income allocated to the mortgage be based on the rental income from the first property or the second? I guess what I'm asking is, is it a "stair-step" kind of thing, or is it all based on the rent from the first property?
Like I said, I'm new, and this may not have made much sense. I'd appreciate any feedback though. Thanks.
Hi -- How much are you (hoping) to buy this property for? A discount of $5K of asking price seems like not so much to me -- $5K off of an asking price of $50K is only 10%. When I was a real estate broker a few years ago, statstics showed that a property that was listed at more than 10% of the (estimated) market value would not sell until general, market-appreciation caught up to the asking price so that that the price had become less than 10% over market. So, if the property you are looking at is more than $50K asking, it would have to have some type of special attraction to be of interest to me.
What kind of special attraction? Well, maybe I own the property next to it, and I see an opportunity to expand or improve my tenat-parking. Maybe the property is zoned in such a way that I think that the asking price should have been more. Maybe the propert is in the 'path of progress', and I think it will appreciate faster than other, similar propertys would. You see what I mean?
As to 'stair-stepping' your financing, I suggest that you talk to some local morgage BROKERS -- a mort broker works for you; does not earn a commision unless your loan is completed; and it more likely to have some sources of $ available to recommend a loan to you and from which you can select. In general, it seems to me, lenders would look at your units/apts as possible liabilities more than as additional assets. If your rental income-to-rental expenses ratio is 'positive' enough, then lenders may not look at them so 'hard'. Be prepared to provide ALL the financial info on each unit you own, and to provide proof for all your numbers. You'll have to provide your income-tax filing for the past 2 (or 3) years, as well. As you proceed to 'stairstep', from one property to the next, this info will be looked at with more rigor. Good luck to you. -- Bob