with bad credit[600 middle score, repo from 97] and recently lost your job to corporate downsizing…
How would you use your 5k to build a r.e. empire?
I direly need input…
Thanks
I have bought houses for that amount cash on the East side in the past. Today is a different story. With no job and credit that is a lot better than mine you may consider hard money loans to buy fix ups and resell hopefully at a profit. Their money is expensive so you need a good deal say 60 % of retail less repairs. As you can see from this site there are a lot of folks looking for the same thing but there are a lot of deals too. call or write and maybe I can give you more help
Thank you,
Ted P. Stokely Jr
11505 Sw Oaks
Austin, Texas 78737
512-301-9171 home
512-587-6177 mobile
for the response and advice
Buy your own investment property and move into it. Call it an owner occupant and actually move into it to make repairs and live. Buy a HUD house or other foreclosure property. You will need 3% down for an FHA loan (you should qualify) and closing costs but those you can have the seller pay if it’s a HUD house. Get a line of equity for the difference on value (you should be able to go 100% but even if your credit has some faults you will at least get 80+ % of the appraised value. After you are done with these steps either buy another investment property and continue to live where you are or buy another owner occupant and move into it. Again with the 3% down FHA loan. Just show the bank to get approved for your 2nd FHA loan that it is on the market or you have a lease option for 1 year and they will buy. This will allow (even if not 100% true) you to get a 2nd 3% down FHA loan. Again lien this property for a “line of equity”. Within 1yr you would have taken your 5k down and made yourself a return income on your 1st property of a few hundred a month, bought 2 homes, have 2 lines of equity (awesome loans) of which you can borrow on at your discretion. After this point you are pretty much forced to go conventional. Now at anytime after your 1st line of equity is given you would then have that amount of funds to use for your investing (20-100k depending on your value) in investment property. Just use your line a month ahead of the loan to deposit it into your checking account or buy the investment homes with the line all together if your line is large enough. After each house is repaired you then proceed to different banks getting cheap liens placed against your property. For example bank one charges only 125 bucks for the complete package to lien your property up too 80% ltv (for investment property). These loans are approximately 7-8% and only $125 of costs rolled into your loan. They can be 10-30 year terms and no escrows for taxes and insurance. Use this money to pay off your line of equity from the house you purchased and do it again.
Anyhow I gotta run but if you need clarification just repost and ask and I’ll try to spend some more time explaining. I’ve mentored a few in the Ohio area and helped them get going so I have a clue what I’m talking about. It’s not hard it just takes effort and responsibility with the money once you get it.
Ohioinvestor,
Thanks for the info. Not only did you help Verbatim but you got me thinking as well. Could you elaborate more on how to establish the “line of equity” Here is my situation: I’ve recently bought 4 rental properties and I own my own home. All of them, either through purchasing them at a good price or fixing and improving them have 20 %equity in them. They are all rented but with not much cash flow right now. I have excellent credit (716 last time I checked) and lots of available credit on my credit cards but very limited income and no proof of income due to recent job changes. (I’m using stated income/No Doc loans). I’m interested in buying another house to rehab but I’m really hesitant to hit my credit cards for $15-$20 K because of huge payments and decrease in my credit and credit scores. I don’t think I’m taking full advantage of my borrowing power but can’t think how to solve the puzzle.
Any advice you can give me would be greatly appreciated. I’d also like to pick your brain for more info if you don’t mind picking up another person to mentor. Feel free to contact me. Thanks in Advance. Kathy
ski@austin.rr.com
Katherine Mersiovsky
1001 Glenwood St
Round Rock TX 78681
Hm: (512) 341-9557
Cell:(512) 680-3663
If makemoney and ohioinvestor could correspond on this post instead of privately i would greatly appreciate it. I intended to ask you to elaborate on the line of equity scenario but she beat me to it. PPLLEEAASSEE dont cut any readers out of the learning curve.
Thanks folks for the posts.
A line of Equity is nothing special in terms of getting one. It is simply a lien placed against your property in a 1st or 2nd position. It is a lien for the entire amount of value of your property minus any other primary mortgages. It is found at any bank you visit, bank one, national city, 5/3rd etc.
How it works:
House “A” is worth 165000. You have a 1st mortgage of 115,000. There is a difference of 50,000 in equity on your Home that is doing nothing to help you advance. It’s just sitting there, so we can put it to use to give you more buying power. Now you can go about it 2 different ways, you can lein your house for a true 2nd mortgage and grab that cash and use it but you will likely be paying a higher interest rate, and you will have that payment too look forward too ALL THE TIME. Also it is likely that getting that 2nd mortgage will not be put at 100% of value so you will have less to use.
Or you can go get a line of equity (its advertised alot nowadays) the Lien will be for the full value of your property minus your pri mortgage so again its 50,000 in this example. The benifit here is that we do not have any payments untill we write a check on that account. While there is that 50,000 lien there is no actual debt atm. Its a blank checking account sort’ve where you receive a CC and a check book for the secured amount as a credit limit. Then when you go out to buy a house if your amount is high enough you may be able to buy it with cash (no liens against it the new property investment) using your Line of Equity.
While you carry the debt load for the property on your line of equity you will have a payement that is rather low (usually just interest payment is the minimum).
The next part of the puzzle: Getting the money back out of the house you just bought with your line of equity, and maybe if wanted putting a few thousand or more into your pocket with minimal closing costs (100-125 bucks) instead of usual closing costs of 2-5 thousand. This saves you great sums of money if you look at 5 or 10 houses you could have bought 1 or 2 additional houses with cash and have no debts or that saved money could easily buy you a BMW.
Your initial closing if done with any other source than a bank (for example your line of equity) to pay for the purchase of a property will save you 2-5 thousand in closing costs bank fees or excessive title requirements. You can pick your expenses since no bank is dictating your costs. Generally closing with the bare minimum stuff to protect yourself is only going to be 500-800 dollars on a 50+k house of which is a far cry from the norm of 4 thousand.
Then since you have possesion you make your needed repairs (i use Credit cards to make repairs as it makes it quite easy to track the total expenses and the interest paid is depreciatable anyhow. Once your repairs are completed you will not be stuck to the normal lending rules that applied when you first purchased the house if you used a bank.
Lets say its a house that cost 50K normally the bank will want 10-30% down plus closing costs and probably even escrows for repairs. and if you want to cash out and get your money back out of the house to move on and do more deals you have to pay all of the closing costs all over again for the property (another 3-4k). But if you used your line of equity then you do not have to awnser to any bank to close your deal ( you can often put on a purchase contract that your paying CASH with no delay and offer a quick closing in 2 weeks or less if the seller can get the paperwork done quick enough. This gives you a bigger bargining tool. Once the house is bought with your line of equity (only 600 in closing costs) you then make your repairs and put in a tenant or lease option if that was your goal and seek a refi. To refi don’t go to a broker, go to a BANK. The same one you got your Line of Equity is great in fact.
When you refi your property after repairs are made you can cash your property out for more than you have invested into it to put CASH in your pocket. They will generally lend you 70-80% of your value. For example a house i purchased recently was 33k. I fixed it up 2500 in costs and put a tenant in it (it was intended to be a rental). I did this with my line of equity so i paid no absorbanent costs. I then went to bank one, told them i felt it was worth 75,000 after repairs. I made an overly dramatic letter regarding the quanity of repairs made to bring the house up to par and they did what is called a computerized appraisial. The value came close and i settled for a 72,000 value on the house with the bank (i always ask for a little more than i want). The bank gave me the terms of 7.5% for 20 years or 7.75% for 30 years (no documentation style loan). I chose the 20 year term and the costs for closing was only $125 dollars (no additional title costs needed and no apprasial fees on computer appraisials Everything is paid by the bank). They gave me 70% ltv so i walked out with a 50k cashiers check of which i payed off my 36000 worht of expenses to purchase the home and put 14k in my pocket to use for the next house and my line of equity is now free and clear and ready to reinvest again. Anyhow gotta leave, had a baby and he is keeping us busy… leave any questions if you have any sorry i was gone so long the baby is new 
Ohioinvestor,
This is great info. Congrats on the babe…
Let’s assume that for some reason the person that was taking a line of equity were to default on it after they withdrew some funds. If the bank with the line of equity were to foreclose on the secondary lien, how would that impact the Primary lien holder?
Have a brother looking to do home improvements. His Cash flow is tight and credit not so good. This sounded right in order for him to do the improvements, but want to make sure the primary lien holder (another family member) would not be impacted during a default.
Best Regards,
Travis
tradian@austin.rr.com
In Ohio (i’m sure its the same in texas) if the 2nd lien holder files for default with foreclosure then the house could be auctioned. The primary will be paid off 1st of course and any left over proceeds can go to the 2ndary holder. Either party can of course show up and bid the property to any amount to reclaim it. But there is too many factors to discuss that now not knowing if it would ever happen to begin with.
Its not free money, it is due back like any other loan. he can use his line of equity to even pay its own payments given enough balance is left after he goes on a shopping spree. Its a debt like any other, and its secured to your property.
Thanks Ohioinvestor,
This is great information. I really appreciate you sharing your knowledge with us. This scenario would free up some of my money for me. I have great credit and some real estate but no cash. I keep finding properties that have good rehab potential but can’t come up with the cash to do them and I’m not willing to over extend my credit card debt. I’m also tired of paying everyone so many fees. Like you mentioned, if I close with a mortgage broker it’s $4-5K for costs and similar fees to refinance. I have had good success with getting the seller to pay my fees but the lenders I’m using (stated income loans) limit them to 2% of sales price.
I will ponder your suggestions and I’m sure I’ll come up with more questions soon. Thanks again, Kathy
Is there any way to use this technique on homes you’ve acquired sub2 [with land trust 4 example] ohioinvestor? Or must the loan be in your name
Let’s keep in mind that a second lien is nothing more than borrowing money. It’s the same as if you put the money on your credit card. Either way, you are using someone else’s money to make your purchase. Fail to pay them back, and you risk the property.
I’m not saying that a second lien is wrong, just be careful that you aren’t stretching yourself too thin. A smart investor will ensure that each transaction can stand on it’s own. You do this by getting your credit rating up to par, save the money, and purchase when you are ready. If you continue to borrow money from one house to purchase a second house, a quick down-turn in the market can easily make your house of cards fall. :flush
Hi -
And its something that far too many overlook. The very blanket mortgages and cross-collateralizations that make some deals workable also make them vulnerable to the slightest problems.
Why go through all that? It’s simply not necessary.
One more thing, I’ve made more money by sitting (waiting) than I ever did by rushing through mediocre deals. Time is too precious for that.
Nice post.
Take care,
Eric C
Hi Ohioinvestor,
Thanks for sharing with us. I heard about this line of equity (or some call line of credit?) last year from someone in Washington State and I was trying to apply it from the local banks here in Hosuton Texas (6 months ago). I visited Bank of America, Bank one, Credit Union…, none of the bank offers this, they told me this kind of loan doesn’t apply in Texas due to some type of government policy…? Is it true? If any of you (in Texas) successful in getting the Line of equity with any bank please share it with us.
Thanks
Sarah
Sarahhouston2000@hotmail.com
Although it’s great to have a line of credit, an alternative is to borrow money from a hard money lender. The interest rates are much higher, usually 15%+ (on average around 18%-21%); however, your credit is not a consideration. The loan is based on the property value and they usually will loan up to 70% LTV. You will need some money up front for closing costs and transaction cost. But $5k is more than sufficient (around $2-$3k). Some HML will even allow you to pay them back, interest and principal, when you sell. So, you do not have to worry about making monthly payments and can concentrate on rehabbing your house. You then sell it and build your cash reserve. In summary, HML is great when there is a big margin for profit. In fact, most investors use HML.
Who are some of the Hard Money Lenders in Austin(or elsewhere) that offer 70% LTV? I’ve never used them before but I would definitely consider them when the time comes.
thanks for the info,
Bennie
Dear Shwing,
I have a big problem with your last post! “It is less risky to you if your deal turns sour, since you can let the property foreclose and not lose much money.” What the heck kind of advice is this to give out?!
It’s hard enough to get loans as it is without more companies getting burned because people like you are using them as a safety net. The more often they get burned the tighter the purse strings are for the next person. I’ve already run into problems with companies wanting chain of titles and have caps on appraisal changes because they have been burned too many times in the past. It makes it harder for honest people to do business.
I would like to think that most investors are like me and feel they are responsible for paying their debts regardless of the outcome of the deal. I don’t care if it’s a multi-billion dollar company, a small bank, your partner or your Aunt that loaned you money. I just think it’s completely WRONG to go into a project with the attitude that if you screw up you don’t have to do anything about it. If you loose your shirt in the process then so be it. Start again.
I’m sure you would feel quite differently if it were you who loaned the money, held the note, foreclosed on a half finished project and had to try to figure out how to get your money out of it.
What you do with your finances is your business, but please don’t teach people to do this.
Kathy