You asked why get a hard money loan on one’s property when one can create paper agains the equity? A good question.
First, the home equity loan ain’t hard money. It’s rather soft money. Hard money in my area is 5 points and 18% interest. My home equity loan is no points and 10% interest. That ain’t hard. That’s lovely! My only problem with it is I don’t have enuf!
Why would one use one’s home equity? It depends on what you want to do. I use my home equity to buy, fix up, and sell property; or buy, fix up, rent up, and refi the property. Under both scenarios, I eventually pay off the home eq. I don’t want anyone else controlling my home eq since I will be paying it off. Giving my home eq as paper to someone else is probably the worst thing I could do…because of my game plan.
So you see, it still depends on your game plan. Your technique sounds like a CS buy and hold technique. It’s ok, but I think there are far better ways to utilize one’s he these days, especially given the relative ease of getting financing.
Finally, there is another reason why I don’t do the paper route. Good luck convincing the seller to take paper. I’m not saying it can’t be done. What I am saying, though, is my all cash offer will be accepted 9 times out of 10 over that hold paper technique. Why? Because I’m giving the seller what they want: cash. And I’m getting the cash, obviously, from my home eq.
Home Equity for start-up capital - Posted by Markie Mark
Posted by Markie Mark on February 18, 2000 at 15:29:12:
Hello,
My question involves obtaining money from home equity to purchase a second property. Would a second mortgage be a good idea considering I will now have two monthly payments to accommodate?
Re: Home Equity for start-up capital - Posted by Amy Hutton
Posted by Amy Hutton on March 07, 2000 at 20:28:15:
If you have equity in your home, WHY would you get a hard money loan on it to buy property? Instead create a second mortgage on your property in paper and offer it, or part of it, to the seller as a down payment. The YOU control the terms. If you have a big equity, divide the notes into small amounts like 5 $5000 notes secured by the same $25,000 second mortgage. Then offer just one of the notes as security.
I use my home eq line as my primary funding source. I have 100k in equity (created during a rehab that was bought from a dont-wanter, motivated seller), and I use it to buy 40k houses, rehab for 20k, sell for 80k, make 15k, and pay the line back off.
I do have one rental duplex I used my line to buy, rehab, and then put tenants in and remortgage. I got all my money back and had a beautifully rehabbed house no-money down.
Learn the finance guidelines so you can use your deals to constantly repay your equity line. There is no need to have to keep the second mortgage longer than a year on your home… if you buy right and have a good game plan for your properties. As always, knowledge is power; you have to know what you are doing. If you aren’t completely sure how to pull all this off, take 3-6 months and read up on free info here and $15 books you can buy at amazon.com so you will know what you are doing. Once you know what you are doing, it’s a piece of cake.
I’d look at the three loans combined. Would the rent you’d generate from the purchase and subsequent leasing of the rental property cover your second mortage on your home + the mortgage on the rental you are to acquire? If the rent exceeds the two mortgage, you would be putting yourself at an advantage. You’d also be beginning the 30 year clock on another mortgage… a mortgage that someone else will pay off for you, leaving you with an income producing asset. That may in turn help you to finance your vacation home in Jamaica. Take it easy!!!
Why don’t you just consider using your record royalties!!! No offense intended, but that’s not a name you see every day!
On a more serious note - using home equity is an extremely viable option for obtaining investment funds, and it makes a great deal of sense in many situations. In fact, you might want to click on our banner above (not American Note’s) and check out the article “Home Equity - Liquid Gold” to review the basic generics for the benefits of such a program.
As with most investment decisions, this one will have an awful lot to do with your personal financial situation, the particular deal you actually use it for, and the objectives and exit strategy you plan for the deal - which of course is an important part of your thinking when you purchase the property in the first place. Hope this helps and best of luck.