I see that experienced people buy MANY flats using loan and then provide them for rent and that rental payments cover loan payments.

But when I asked the bank to do it, the bank is glad to provide the loan, but they have a limit calculated with my profit that would be enough only for 1 apartment, perhaps 2 really small flats.

So how people do it? And how it was supposed to do in CashFlow 101 game?

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    What is CashFlow 101 game? – Hart CO Jun 20 '18 at 16:50

Lending decisions are based on risk assessment. How likely is it that I (the bank) will get paid back? Most commercial real estate loans require larger (~20-25%) down payment, since backed by the asset, this means even if you immediately default on the loan, so long as the asset doesn't lose significant value the lender will be made whole. They further minimize their risk by requiring the asset to be insured.

In addition to a high-down payment for commercial real estate, lenders will evaluate the borrower's income and particularly debt to income ratio. They usually discount rental income due to its uncertain nature. For example, I have steady rental income, but banks only count 70% of it when I apply for loans, while they count 100% of income from my job, and they fully discount the potential rent on my single-family purchases. For an apartment building they will factor in potential rent to some extent.

They also evaluate credit history, if you've done a bad job of repaying debt in the past, they are less likely to lend you money.

Unless you already have significant wealth, you aren't likely to be able to secure financing for an apartment building. Typically those individuals that do own significant real-estate holdings grew their portfolio slowly or had wealth/windfall to begin with.

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You kind of answered your own question. They are experienced and have presumably built a team for finance, and operations. Presumably you have no such team in place, nor experience in being a landlord.

This assumes these people you are talking about are actually are telling the truth, keep in mind they may not be in one fashion or another. It is very possible that they do not own as many properties that they claim, they may not be as heavily financed as they claim, or they may be on the verge of bankruptcy. People lie about their situation even when there is no direct benefit to do so. It happens all the time on this site, people ask questions with inflated numbers or fabricated situations.

That part should answer your question. However, here is some more:

Here the bank is doing you a favor and you need to pause and reconsider your situation. Sure if things go great, you can turn a modest investment into a large profit percentage wise compared to your investment. However, it also works both ways. Your 10k or so investment could turn into a 100k loss.

I see you are a PHP developer from your profile. Lets say you were offered an opportunity, give me 10k, and if you do the job perfectly you get 35k. If you do it wrong, you then have to pay an additional 90k. Would you do it? Would you do it if the job was in textile engineering, research chemistry, or locomotive repair? That is basically the deal you are singing up for when choosing to be a landlord without experience or cash.

Real estate can be a great investment. However, rental properties should be paid for with cash. It gives you a large margin of error, and many errors will be made.

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  • As far I can see in Germany, rental ROI is ~5% annually on real estate. I suppose it is not a too good investment since in the private business you can invest with ROI 10-30% annually. It is the reason why using the loan with 1-3% annual payback is interesting and making the whole cashflow work. And it is the reason why I think buying the real estate with cash can be acceptable for personal use but is not a good business investment idea. – Eugene Kaurov Jun 21 '18 at 9:51

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