Best approach to financing first rental property - Posted by JinPA

Posted by Robert Staats on September 17, 2003 at 15:39:34:


While some real estarte gurus will say negative cash flow can be OK, I personally stay away from it. There are other deals where cash flow is positive, plus you still get equity buildup. An exception could be where you firmly believe equity buildup in the condo would far exceed other opportutities, plus of course you can afford the negative cash flow. I would sharpen my pencil a bit, though, to carefully estimate what your cash flow will be. Nail down the expected rent figure more. And make sure to include maintenance costs and a vacancy factor.

Re the mortgage, I would put a first mortgage on the condo, as the rate should be less than a home equity line (of course verify that first - I am less familiar with condo mortgage rates).

Good luck!

Best approach to financing first rental property - Posted by JinPA

Posted by JinPA on September 04, 2003 at 22:30:11:

My wife and I are in the market for our first rental property and could use some advice. We both work and have a 750+ credit score. We will have our 250k home paid off in the next 48 months.

We are considering the purchase of a two or 3-bedroom condominium. We expect to pay somewhere between 140k and 160k for the property. We could put down 20 percent of the purchase price to avoid PIM. We understand that in our area, such a unit would rent for between $950 and $1250 a month.

Our questions include:
Is a new mortgage on the rental property, a better option than a home equity loan on our current home? Do I have other alternatives? Who would I talk to learn more?

We have just started reading Landlording by Leigh Robinson. Are there other books that we should read?

Is it every acceptable to have a negative cash flow? We live in a growing area and the homes are appreciating. We feel that the appreciation and the rising rents would make the negative cash flow acceptable for a period. Is that foolish?

Thanks in advance.