# Handling loan on flat to rent

I intend to buy 2 room flat and rent it. Flat costs 240k and I have 70k in cash. I expect to get paid 2k per month from renting flat (1k per room). Bank requires my minimal contribution of 10% of flat value, that is 0.1 * 240k = 24k.

Now, I see few things I can do:

1. Get loan from bank 240k (flat value) - 70k (cash in hand) = 170k loaned. I will have to pay bank 0.7-1k per month for 30 years (360 months). In this option, I am using all my cash in hand to take smallest possible loan, and what comes with it - lowering total cost of loan. Then, having income every month of 1k = 2k (from renting) - 1k (paid to bank), I can:

1a. Pay bank even more, so I will pay loan faster, which will in turn lower total cost of loan even further

1b. Gather this 1k/month on investment account with interest, so I will be able to pay loan even if something happens

1. Get two equal loans on two equal flats. 240k (flat value) - 35k (cash in hand) = 205k, times two flats, that is 410k. Then I have to pay bank around 0.85-1k per month per flat, but I get 2k per flat. This leaves me with around income 2k per month, so I can:

2a. Pay bank even more, to reduce ONE loan as fast as possible (then reduce second)

2b. Pay bank even more, to reduce TWO loans (50/50)

2c. Keep cash on investment account with interest

1. Buy 3 flats and same logic as in point 2abc. Expected income 3*2k, and must pay bank 3*1k per month. I am not sure, if this raises my risk or lowers, because, if something bad happens in one flat, other two may be able to cover it, but higher loan = higher risk, but then again, investment account with interest or paying loan faster seems to lower risk.

2. Buy 1 flat, but with minimum (opposed to maximum as in points 123) own contribution, so: 240k (flat value) - 24k (own contribution) = 216k Then I have to pay bank 0.9-1k per month (so more, than in point 1 as loan is bigger), but I still have 46k cash in hand, so I can put it in investment account with interest and stockpile it with income.

3. As in point 4., but buy 2 flats with minimal contribution

So, there are really few repeating questions:
A. Should I take minimum loan (use all cash I have) or maximum (to have safety margin plus interest)?

B. Should I but one flat (so lowering risk by minimizing loan) or 3 flats (minimizing risk by covering one with another)?

C. What should I do with income in "good times": try to repay loan as fast as possible or stockpile it on account with interest for "bad times"?

D. If in C answer is repay loan as fast as possible, then repaying all loans equally or focus on one of them?

Other data, that may be relevant:

• it can be assumed, that I will always be able to find someone to rent my flats

• happens in Poland

• I will be able to cover loan costs of 2k (so maximum for 2 flats) from my personal income without sacrificing much life quality

• everything will be purchased on LTD company, not on me (human) so worst thing that can happen is losing all invested money and time

• I have already scheduled meeting with professional tax advisor, but I really would like to hear Your opinion anyway

use all cash I have

This is a horrible idea. Any problem requiring money will turn into a really big problem. For example any bigger problem with newly bought 2 room flat (emergency repair, damage by renter) will both reduce income and be impossible to fix until some money is secured.

Whatever contribution higher than minimal depends on many factors (risks, alternative sources of money, loan conditions etc). But spending all cash and living paycheck to paycheck is unlikely to be worth it.

it can be assumed, that I will always be able to find someone to rent my flats

This is a very optimistic assumption.

• That sounds reasonable, so Your answer for A is "maximum loan" and for C it is "stockpile". What about B? Is it reasonableto buy 2 flats, if I will still keep some cash? Emergencies can be dealt with insurance I believe, and as for my optimistic assumption - I am currently renting room for 4 years without even one month free ;] – xinus01 May 14 '16 at 16:55
• @xinus01I am not confident to answer that either of this solutions is strictly preferable over alternative. What is better depends on many factors starting from family situation, other financial factors, risk of repair necessity in either of flats (lower for ones in new building) etc etc. – Mateusz Konieczny May 14 '16 at 17:08
• To be clear "Your answer for A is "maximum loan"" - it is more complicated. I am not aware about overall situation and it is likely that some balance between these two is optimal. But I very strongly advocate to keep some reserve (how much is required - it depends on situation). – Mateusz Konieczny May 14 '16 at 17:16