Posted by Dimpil on October 29, 2003 at 05:03:44:
You are freeing your money up for your use at a lower rate then you would be able then a bank loan.
You are also creating a tax deduction for yourself.
You are using the equity to make more money then the payment you have to pay for the equity loan. At least that is the plan.
So IF I take out 40k, with a payment of $400 I’m trying to make a postive cash flow of $1,200 with 4 properties (10k down, buy forclosed home at 50 LTV, on each home rent about 700 payment and misc 350 using interst only here). OR I could be trying to fix and flip and making a profit on low side, 20k per fix and flip, say 4, so I doubled my equity money, then using the 40k from profit, fix and flip some more.
If your are an investor taking out your own equity, you are always trying to generate a positve cash flow so the loan will pay for itself and give you a litte income.