Buying more Chicago Property using existing owned Chicago Property
A rental property is a good investment if bought properly. Managing it yourself might not be easy, which is why we advise that you use a Chicago property management company, such as Lofty Real Estate.
Firstly, let’s explain what Leverage in Real Estate is. Leverage in real estate simply means how much money you borrow to finance an investment property compared to the property’s worth. The higher your leverage, the higher your potential ROI. Leveraged real estate investing works best when rents and property values are rising.
As rents and the value of the real estate investment increase, their monthly mortgage for rental property remains constant, creating larger and larger profits. Today’s rents and property values are appreciating at an extraordinary rate to say the least – the ideal environment for real estate investors who know how to leverage real estate investments with borrowed money.
1. Leverage Existing Property to Buy More
Using your rental property as leverage to get another property is the easier way of leveraging property because the rental income paid by tenants can be used to pay up the mortgage on the rental property and gain some equity.
A second mortgage would also involve higher interest loans than the first, so you have to be absolutely sure your primary property has enough equity to cover the expenses associated with taking a second mortgage.
2. Leverage Your Primary Residence to Buy Another
Another way of leveraging property to buy property can be by using the equity on a primary residence to get another mortgage. It can be another house or even a rental property. This route will mean that your primary residence will be collateral to the lender if you default on the second mortgage payments.
How to Get A Second Mortgage?
Know How Much Equity You Have
Knowing how much equity you have will help you make a quick decision on whether or not to go for a second mortgage and leverage your property to buy property. The more equity you have, the more your chances of success when it comes to your application for a second mortgage.
2. Have a Good Credit Score
This may seem obvious, but it is also another key part of the process. An excellent credit score will also drastically improve your chances of being approved. If you’re interested in leveraging your primary Chicago property to buy another property, then you have to possess a credit score to match.
3. Pick out Your Preferred Second Mortgage Option
There are two options for you here, either you go for a HELOC or a home equity loan. Each option has its own risks and benefits, so be sure to pick one that suits you. If you’re leveraging Chicago property to buy another property, going for a HELOC might be best. On the other hand, if you’re leveraging property to buy a Chicago rental property, then going for a home equity loan where you’ll get a lump sum might prove to be the better option.
4. Shop Around
Once you’ve carried out these three steps, then it’s time for you to explore the options you have with lenders and their rates. Research the terms of each second mortgage with due diligence. Many financial lenders provide free quotes online or by phone after you’ve provided a few details, such as your credit score range, loan amount, term and the type of mortgage you’re interested in. Comparison websites may also offer insights to institutions that are not as well known to the general public. To get a solid rate offer you must get preapproved for a mortgage with each lender. When you apply for a mortgage, a lender verifies your income, finances, employment and credit to determine how much you can borrow and what interest rate you qualify for.
With home prices continuing to rise, it’s better to minimize your costs when possible on the borrowing side — and shopping around for a mortgage is the best way to do that!
When you leverage your real estate investment purchase, you get to depreciate the total cost of the property, not just the cash you put into it! This means you receive a significant tax deduction each year which can be a big incentive for a lot of prospective investors. You can write off any interest paid on the loan, which during the first several years is the majority of your loan payment. This provides another substantial tax deduction each year.
Real estate has some great tax benefits, and leverage allows you to take advantage of the interest deduction and depreciation on an amount much greater than what you’ve invested.
Leveraging property to buy property is a smart way of acquiring more property, especially if you have the required equity. With our guide, you have all you need to know about leveraging property to buy property. Reach out to a member of our team to discuss your options or to learn more about leveraging existing property to expand your investment portfolio!