Why can't a person buy a rental property with cash, use the rental income to purchase another property, and so on, virtually infinitely?

Update:

Sorry, I meant if they can use the rental income on the first one to pay the mortgage on the second, and do this on and on for many properties. 

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  • 2 months ago
    Favorite Answer

    You can buy with cash. However, you have to show 2 years taxes proving you received and paid taxes on the rent, before a mortgage company can use the rental income when qualifying you. We also only give credit for 75% of the rental income since there is maintenance and vacancy issues that are calculated in.

    Source(s): Mortgage lender 33 years.
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  • Judy
    Lv 7
    2 months ago

    If they have enough cash, what makes you think they can't?

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  • Anonymous
    2 months ago

    In some cases, they can, but it's a lot more complicated than this.  For one thing, there are lots of expenses involved. This includes closing costs, management of each property, repairs to properties, costs of checking into prospective tenants, etc etc.  You'd need to be in a market where rental costs exceed the monthly mortgage of similar properties.  In many places, this isn't true/

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  • nanu
    Lv 6
    2 months ago

    you can.............................

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  • 2 months ago

    They can and they do. But it can take many years to save up enough of that rental income, minus taxes and other expenses, to buy the next one. It makes far more sense to finance purchases and use the rental income to pay down the mortgages while meeting expenses. When enough equity in a property is built up through a combination of paying down the loan plus appreciation in value, that property can be refinanced and the proceeds used to purchase more property. It takes a sound business plan and wise asset management, but this is how real estate fortunes are built. All-cash is highly inefficient and slow.

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  • 2 months ago

    Theoretically, you can, but the rental income usually isn't enough to purchase another property.

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  • 2 months ago

    They can, but of course you need to have enough cash to buy the first one and then wait for the rental income to build up to enough to do the same again, which means you are likely waiting probably 10+ years to buy the next property.

    Also anyone in the business would know that this was a minimally successful plan. You'd leverage the property value in loans to get more properties faster if you were smart.

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  • Anonymous
    2 months ago

    You can, but you don't want to be spread so thin that you feel desperate to fill your vacancies when they come up. Also owning many properties can become a full time job. 

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  • Anonymous
    2 months ago

    By golly, you CAN.  As long as you have 25% down on each and nobody ever quits paying.

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  • Rick B
    Lv 7
    2 months ago

    They could. If they had the cash to buy the first one. Then waited to collect enough rental income to buy a second (which would take decades)

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