Cant rental (ie, passive) income be used to secure additional funding?
I know that was the case when I considered buying property to rent back before the 2008 crash (I ended up not doing that, luckily).
I know that was the case when I considered buying property to rent back before the 2008 crash (I ended up not doing that, luckily).
In California markets, rental properties are not profitable, when you consider 20% downpayment, 75% rent, etc.
There are 4 kinds of buyers in this market:
1. First home buyers: renters becoming buyers. 2. Second home buyers: thanks to the appreciation of their primary residence, people have bought second homes for "retirement nest egg", "return on equity", etc. Borrow 80% at 4.5%, expect 15% return. 3. Moving Up: same like (2), but they sell primary residences. 4. Flippers
It is kind of hard of flippers to get conventional loans; they have to use portfolio banks, banks that keep loans on their books. A bank I know of, offers 6% fixed first year, variable rate for the next five years. Flippers get these deals, after putting 20 to 30% down.
The interesting part has been the interest rates. We started out borrowing hard money at 14% and are down to 7-8% now depending on the lender. Lots of cash out there chasing returns.
In most markets, rental properties are not profitable. Almost all of the profit comes when you sell the building, from appreciation. If you're breaking even on a rental, you're actually ahead of the game.
I probbably should have sold it long ago but $70/month is like internet.
Now, they could re-finance the property into a conventional rental property but none of them can afford to do it for all of their properties. Flippers tend to do 4-5 at a time, not just one.
What I suspect happens is that once you reach some number of properties, you become a commercial borrower, and different rules apply. A former coworker owned most of a street of duplexes at one time, and he had no problems getting loans.