I have been trying to add more properties to my portfolio but now I am reaching a debt to credit ratio that is too high to get conventional loans. My goal is to get residual monthly income right now I make half as much as I work and I want to surpass it. Even though it is profitable banks are turning me away because the debt to credit ratio. This is forcing me to sell properties that are not as profitable and hunt for those with a higher profit margin. I feel limited in reaching the next level as well as buying any additional properties. Please give me any advice! Thanks.
Answers
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Hi, Rene,
I have often been in the same position, but I think you are right to use loans as leverage to purchase several properties instead of waiting to save enough to pay cash for one. You can take advantage of tax breaks for investors and acquire more properties than you could otherwise.
I would only sell any poorly performing properties to free up cash if you find a great deal or to pay down another mortgage; but hang onto as many as you can and see if there's a way to increase your cash flow by fixing them up and raising rents. It's tempting to try to purchase more, but you may be throwing away your equity and adding to your acquisition/sales costs if you sell just to be able to pay cash. Your ultimate goal should be to pay off the mortgages, starting with the property with the lowest balance and/or highest interest rate. Rental properties are often harder to sell than they are to buy.
Good for you to be in the game instead of on the sidelines! I have owned, managed, leased, bought, and sold rental properties for many years. Underwriting rules are more strict for investors than home buyers, so I know you had to jump through a lot of hoops to put together your portfolio.
If you have any questions, feel free to contact me.
Best of luck,
Robin
Hi Rene -
I think you may have jumped too soon. You should be buying investment properties with cash not debt.
My advice : sell all of your properties, and with the net cash from all of them, buy one rental. Save that cash flow from the one paid-for rental until you have enough banked to buy your second property without debt.
Find a safe Money Market account (USAA has a good one) to use to bank your cash flow until you have enough saved to buy that second property.
Your ability to reach the next level is undermined by your debt. Get out of debt, stay out of debt, and your level-ups come faster and faster.
If you stay in debt, your momentum decreases; and your cash value is decreased day-by-day by the debt servitude you must pay.
If you free-flow cash, your momentum increases day-by-day, because you have no debt service to slow you down.
Debt hurts your momentum, lack of debt exponentially increases your momentum.
Best regards.
JG
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