I’m exploring the idea of getting equity out of the property after acquisition to pay for out-of-pocket expenses and use as reserve to pay for mortgage payments plus the equity loan payment. Now I know it can be done… through lenders that do not require seasoning or timeline restrictions.
But my question is: Why has this never have been mentioned or suggested in any of the books or posts (that I have read)? It seems so simple and I do not see any downfalls, if of course, the house sells before the reserve depletes… and that is almost certain. So I’m wondering if I’m over looking any possible problems that may occur with this method.
Please post all your thoughts on this! Thanks a mucho!
Why want until you close. Borrow 100% plus when you buy the property. My HML loan me 100% of the hard costs plus 4 to 6 months payments and I borrow the equity money that I need from private investors and pay 36% to get it. Sure it is expensive but if you look at the deals that I do it is cheap to pay a grand to borrow $5000 if I am getting $300,000 equity and $3000 per month positive cash flow. Borrow all you can at what ever rate you have to pay to get in and do the rehab and get it sold or refinanced.
There have been some great books written on the subject
Ordinary people, extraordinary wealth
Ric Edelman
He is a nationaly syndicated talk show host, financial planner. Manages a couple billion in assets. His book is about his wealthiest clients. What is there number one secret? They don’t pay down their mortgage. Truth is, money inside your house is about the worst place that you can have it. A short financial analysis regarding home equity based on the following variables:
ROR (rate of return)
Safety
Liquidity
Taxes
ROR - Home equity itself does not have a rate of return. Your house goes up and down as a function of market value, your mortgage or the amount you send to the bank each month paying down the principle does not have an effect on the rate of return. The rate of return on the money you send to the bank? ZERO thats right, you will never receive a divident check in the mail -
Safety - The number one cause for foreclosures? Disability. Most people can’t access their home equity when they need it the most. You think its yours? Try missing a payment or two and see who it belongs to -
Liquidity - how do you get your money out of the bank? HELOC? pay the bank to use your equity? sell the house, or refi -
Taxes - the only break you get is on the interest, not on your principle payments. Cash out the equity, borrow as much as you can as cheaply as possibly. That is my theory
The information above is covered in depth in the following:
Missed Fortune, Douglas Andrew
Missed Fortune 101 Douglas Andrew
An interesting option to seperate the most equity is the option ARM -