Re: Looking for ideas on leveraging… - Posted by ray@lcorn
Posted by ray@lcorn on June 06, 2005 at 22:09:18:
I don’t know where you are in the process of selling the SFRs, but you’re sort of mixing two strategies.
If a credit line is what you’re after, then you may be better off securing the line with equities from the houses. Be aware that to use a credit line properly your business model has got to include a way to pay off the line, whether through cash-out refis or sales. The former requires that you put the CL funds into properties that you can quickly improve the NOI and bump up the value. The latter generally involves having a flipping mentality, buy low, sell high, and do both quickly.
If pyramiding assets is your goal, meaning you wish to increase the overall size of your portfolio, then there is no better vehicle than 1031 exchanges. That uses the equity as leverage to obtain more income, which in turn creates more value, which in turn increases the equity. If you were to sell the houses and combine the funds (this is tricky from a timing standpoint), you could then buy a bigger deal with upside potential, improve income and value, then refi to get your cash out, then later on, exchange again.
If you’ve already sold the houses and are sitting on the $200T in cash now, then you’ll best leverage that with the strategy that Don outlined in the post below. However, be careful to not overleverage the deal. This article, http://www.real-estate-online.com/articles/art-203.html points out the importance of understanding the break-even ratio in structuring deals.