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.
Posted by mcmuney on October 28, 2003 at 12:14:35:
I always hear people talking about equity and how they take it out and do other things with it. It always sounds very nice when people say, “I took out some equity and used it to purchase another property.”
My question to everyone is, isn’t taking out equity simply resulting in another loan? I know that equity is GOOD, no, it’s GREAT. Regardless of how good it is, it is not FREE money until the property is sold. As a result, anytime equity is taken out, it generates another loan. So how can taking out some equity to purchase another property a good thing when in reality what you are doing is creating 2 loans instead of 1?
For example:
A new home costs $200K and you are lucky enough to get a 100% financing. Your option is to have 1 loan at $200K or you take out $40K in equity and put that as a down, resulting in 1 loan of $160K and another of $40K?
Am I missing something here??? So what’s the benefit of taking equity out, other then having access to a loan that you normally would not or may not have.