Hi, it seems the general consensus is to use other people’s money (HML, etc.) rather than putting a lien on your home to do deals, and I agree with that for the most part.
However, here’s a scenario. My folks are nearly free and clear on their home. We thought it may be a good idea to maybe take a loan against that equity and re-invest that thru purchasing discounted notes, or even lending that money via some hard money lenders and make a higher return on the interest than we’re paying to the bank.
What are some thoughts on this? I obviously don’t want to subject my parents’ house to anything too risky, but these vehicles seem to be relatively low-risk and secured by property, and wouldn’t this be a better way of using that equity to make some more money than to just sitting there as unused equity?
The answer to this question is another question. If your parents took out the loan on their house, could they make the payment on the loan if they lost the investment that they had borrowed? If the answer is yes, then it is a workable scenario. If they could not, then it would be too much of a risk try. There is always the chance when investing money that you will lose the investment or in this business that it will lead to more financial drain on your resourses. My house has been paid for for 15 years and it will stay that way as long as I live in it.
I’m not sure what state you are in but i can check the laws. A purchase and lease option might be the solution. Purchase the property and set up an agreement where they can purchase the home back from you at a later date. The rental agreement will help to offset your dti. Just make sure that its a good LTV or you could be caught out with a dead beat deal.