You own a house that costs $300,000 and you are considering leveraging your home. How would three houses that each have $200,000 in mortgage debt make more money than one house that is fully paid

You will be able to get more money if you have 3 houses and owe $200,000 on each house simply because you can use the houses to earn extra income.

Imagine two situations:

Situation 1: You own one $300,000 house and earn $100,000 of ordinary income. The bank will lend you money solely based on your income.

Situation 2: You own 3 houses and obviously since you only use one, you can rent the other two. Lets suppose that you can rent the two houses at $2,500 each, and after paying all expenses and taxes, you have $2,000 left per month per house. That means that your total income will increase by $48,000 per year and we can add that to your normal salary of $100,000. In order for this situation to be more favorable, your current debt payments must be less than the additional revenue generated by the two houses (less than $48,000 per year). If your final balance is favorable = additional income ($48,000) ≥ current debt payments, that means that you will have more disposable income in order to pay back any additional loans.

Another reason why a bank might favor situation 2, is that in case something goes wrong, e.g. you get fired, it is always easier to sell one or even both extra houses in order to repay your loan.

answer; commerce clearing house;