Posted by Rob Ricker on August 05, 2003 at 22:19:47:
Since you have those free and clear properties, you have a lot of options. If it was me, I’d seek a LOC if I wanted to flip for quick profit. There’s little to no closing costs involved with a LOC, so you’d save the initial cost. If you’re planning on buying and holding the property, I’d do one or more cash out refis on existing property in order to attain down payment money and a good reserve to buy future properties. Then I’d get individual mortgages on your new properties. Just one man’s opinion.
P.S. I’m a mortgage broker licensed to do business throughout the state of Tennessee. I’m located in Knoxville. Send me an e-mail if you need my help in anyway and want to beat those rates that you’ll get from the bank.
Hi all. I’ve had a great year with my investing work. I’m finally getting over a whirlwind of work, and now I’m thinking ahead.
I jointly own (with father and brother) several single family rental properties free and clear. The cash flow is good, of course, but the return on investment is rather puny. I want to expand and purchase more rental properties. I am single and 27 years old, and I am planning for a future when I can support a family and have more free time (a precious commodity now). I have the full support of my parents and brother, and we are all working hard.
Here are some options:
Acquire first mortgages on the free and clear properties and purchase other rentals with the cash. Pros: I can act quickly on new properties. It’s a simple plan. Also, I can lock in while rates are still relatively low. Con: does not net the greatest return on investment(i.e. buying a property with cash and not using leverage). Another con is that if I do not use the cash out, I still have a mortgage payment.
Look for a small bank that will use one of the free and clear properties as collateral for other purchases. For example, I can use one existing property as collateral to purchase say 2 or 3 new properties. The new properties will be acquired at a discount, and I will renovate to increase the value. The small bank will have at least 15-25% in the new property, as well as holding the deed to my existing rental. Pro: I do not pay a mortgage payment on the property used for collateral. The bank finances my deals at 100% of purchase price, but they still have collateral and equity in the new property to protect their interests. Con: They hold the deed, and I lose access to equity.
Obtain a line of credit on a free and clear property. I noticed a few banks will give investment line of credits up to 70%LTV with very low starting fees. I can use the line of credit to pay down payments on new properties. Pro: only pay when I use the LOC Con: Hmmmm. I would just need to season the funds to make sure a lender does not balk.
Option 2 sounds good because the bank will preapprove me, in a way, to purchase new properties. Assuming the small bank is not interested in jerking me around, I will have carte blanche to go after a lot of deals.
I’m busy now, but with things slowing down in a few months, I want to have a gameplan. I’d love to hear any comments. As far as I’m concerned, it is not an issue of IF I will grow, but how and in which way. The next steps will be very important, and I would appreciate any advice.