I’ve got a SFH presently worth about 150-155k or so, that i owe about 80,000 on, and so have a nice bit of equity.
I’m wanting to buy another property of comparable value in the same neighborhood. I know that I can just get a home equity loan, and finance the remaining 80%, but was hoping for opinions on other options.
I’m still fairly new to this.
Forgot to add that credit score, etc is not a concern at all. Thanks for any comments.
HELOCS tend to be Prime+1…that was attractive a couple of years ago, but now with short-term rates going up a cash-out refinance or cash-out stand alone 2nd tend to be more attractive.
You could always finance the new property at 100%
Patrick is right. HELOC’s are not as attractive as they once were. Depending on your scenario rates would be prime (6.75) Plus . I would bet that prime will be @ 7 by the end of the year.
You would probably be better off just obtaining financing for the property itself. Rates are starting to climb but are still very attractive. Obviously investment rates are higher than Owner Occ’s.
Thanks for your info. What kind of fee/cost difference do you think I might see with a cash out refinance or stand alone 2nd vs. just trying to do 100% finance on the new property?
In other words, what would be the incentive to do one over the other?
I guess that I had already made up my mind to stay away from anything with a variable interest rate.
Prime is 7.00% now.
Closing costs will more than likely be twice as high as those associated with a HELOC, but:
-The rate is fixed
-The repayment terms are more favorable i.e., 30/15 or 30 Year fixed vs. 5 year draw 10 year repayment.
Either way - you are going to be paying interest on the money, it just depends which property it is tied too. The main thing that I would consider is how low you need the payments to be on the new proeprty inorder to get it to cash flow with the rent you will be charging. My experience with my clients has been that it is best to put enough down to get a decent cash flow but that putting too much from your own property into it will just produce extra cash flow that is misleading because you will have to make your equity payment in addition. I would suggest putting 5-10% dwon on the new property - you shouldn’t need much more than that depending on your qualiffying situation. I do 90-95% LTV investment property loans for my clients all the time and the rates are not that bad. You may also want to consult a tax advisor about whether one way or the other has tax advantages.
TDBFlynn
Mark, Wake Up! j/j
Prime Rate 7% as of November 1, 2005
http://mortgage-x.com/general/indexes/prime.asp
My recommedation concurs with Traci. Great points Traci. Most of my clients usw 90% financing because it gives them good cash flow and frees up reserves for multiple purchases. As previously mentioned, prime may not be the best option depending on how long you plan to hold the properties. If just a couple years, I dont see prime shifting enough to be conerned about it
Using a fixed second mortgage will have a higher rate but these funds can always be placed in some type of asset vehicle until ready to make your purchases.
One last point. 100% financing is not always a bad option. Espcially if you are are buying the property below market value and will be selling quickly or would want to turn around immediatley and cash out up to about 90%.
If one of these scenarios above applies, you may also want to consider a conventional rehab loan or hard money loan that can get you in with no money down. These are based off the true value and not the purchase price.
Thanks to everyone for the information.
The homes in this area go for probably 140,000 - 160,000, and rent for about 1000 per month. Not the greatest return, but there are other factors that i think make this area a solid one to invest in.
I know that if I could get a deal, I might make a 90% finance work, but there aren’t many of these (it’s a fairly well kept neighborhood, in a very convenient location, as the town has grown, this modest residential area has ended up being in the geographic center of town.)
I think that if I want to go ahead with this, I’ll need to go at least 20% down, unless I want to pay a few dollars in every month until it catches up. At this time, I think that I’d rather put more down, and not have to keep track of the monthly deficit.
Since I plan on holding most of what I buy long-term, I’m attracted to fixed interest loans, as it allows me to more easily set the next goal. I’ve got retirement accounts, etc to fund, and don’t like suprises like increasing % in my monthly nut to sidetrack other investment plans.
For the next couple of properties, I’ve decided that they don’t need to be immediate home runs, as long as they pay for themselves, and show promise. I also have pretty well settled on getting at least 2 in the same neighborhood, if not 3 or 4. I do a lot of the maintenance/repair myself and for the time being don’t want to spread myself all over the place.
Thanks again for all of your information.