Home equity loan
12-18-2004, 09:18 AM
#1
Burning Brakes
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Home equity loan
I was thinking about using the equity built up in a condo I'm currently renting out to use as a down payment on another property. I want to keep my rental property and if I sold it now I would incur capital gains taxes. So what are some of the pros and cons of using a home equity loan as a down payment? Thanks
12-18-2004, 09:59 AM
#2
You may be able to refinance the condo, but as it is not your residence but a rental property you may not be able to get a home equity loan.
Talk to your bank, tell them what you want to do and see what they suggest. If you have a good history with them they may make you a low down loan on the new place.
Good luck!!
Talk to your bank, tell them what you want to do and see what they suggest. If you have a good history with them they may make you a low down loan on the new place.
Good luck!!
12-18-2004, 04:52 PM
#3
I keeps it real
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I would recomend speaking to a broker for transactions like this. When you build a real estate portfolio, it is to your benefit to treat it like a business. This means organizing business partners to build relationships with over the course of your investments.
That said, if you find yourself a good honest broker/lender to partner with, he/she should be able to access niche products to help you cash flow your properties better than any bank could.
Home equity loans are not as easy to come by on non-owner occupied properties, but you can cash out refinance them and acheive the same goal. If you did a cash out refinance, you could pull as much equity as you need up to 90% "combined loan to value." ex. you owe 50k on your property, its worth 100k, you can cash out up to 40k. There are no capital gains taxes on the cash out because the cash is a loan against your equity.
When you run this math though, you have to consider that this loan will effect both properties. Cashing out property 1, will raise the resulting payment so you need to make sure your rental income is substantial enough to cover that and still provide a net earnings. If you are in the clear, then cash it out and purchase your new property. Then of course your new property will have to earn enough rental income to cash flow as well. Find yourself a realtor partner to learn your goals and shop for you accordingly.
A good rule of thumb my investors use in my business is the 1% rule. This determines how much downpayement to come in with to gaurantee a cash flow. In simple terms, you need to be able to charge 1% of the loan balance as rent or you have made one of two mistakes. You are in the wrong market and cannot charge enough rent for the property value, or your loan balance is to high. Mathmatically, this means if you put 20% down on a 100K house, your loan is 80K. If you can charge $800 dollars or more for rent on this property, you have a gold mine of a purchase and an asset to your portfolio.
If you want to sell your first property out right and upgrade to something larger, you can avoid capital gains through a 1031 exchange. This is a tax shelter provided by your title company where the sales cash from your property goes into an account holding untill you find your next property. Then you just put the money down on that next property. Its basically and equity exchange: you just moved it from one house to another.
The above two discriptions are how my investors are managing their real estate portfolios to earn cash on their current properties and purcahse others. I hope that helps. Good Luck!
Oh, i dont think i said this anywhere. I am a broker/lender and my clients use me in all their transactions so they are assured that someone is on their same page. For me it also asures residual business from my clients. Everyone wins.
That said, if you find yourself a good honest broker/lender to partner with, he/she should be able to access niche products to help you cash flow your properties better than any bank could.
Home equity loans are not as easy to come by on non-owner occupied properties, but you can cash out refinance them and acheive the same goal. If you did a cash out refinance, you could pull as much equity as you need up to 90% "combined loan to value." ex. you owe 50k on your property, its worth 100k, you can cash out up to 40k. There are no capital gains taxes on the cash out because the cash is a loan against your equity.
When you run this math though, you have to consider that this loan will effect both properties. Cashing out property 1, will raise the resulting payment so you need to make sure your rental income is substantial enough to cover that and still provide a net earnings. If you are in the clear, then cash it out and purchase your new property. Then of course your new property will have to earn enough rental income to cash flow as well. Find yourself a realtor partner to learn your goals and shop for you accordingly.
A good rule of thumb my investors use in my business is the 1% rule. This determines how much downpayement to come in with to gaurantee a cash flow. In simple terms, you need to be able to charge 1% of the loan balance as rent or you have made one of two mistakes. You are in the wrong market and cannot charge enough rent for the property value, or your loan balance is to high. Mathmatically, this means if you put 20% down on a 100K house, your loan is 80K. If you can charge $800 dollars or more for rent on this property, you have a gold mine of a purchase and an asset to your portfolio.
If you want to sell your first property out right and upgrade to something larger, you can avoid capital gains through a 1031 exchange. This is a tax shelter provided by your title company where the sales cash from your property goes into an account holding untill you find your next property. Then you just put the money down on that next property. Its basically and equity exchange: you just moved it from one house to another.
The above two discriptions are how my investors are managing their real estate portfolios to earn cash on their current properties and purcahse others. I hope that helps. Good Luck!
Oh, i dont think i said this anywhere. I am a broker/lender and my clients use me in all their transactions so they are assured that someone is on their same page. For me it also asures residual business from my clients. Everyone wins.
12-19-2004, 03:23 AM
#6
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Originally Posted by indoMFP
GoDucksCLSPride, thanks for all that info... how does one get into your line of work???
Its really as simple as applying to a mortgage firm. You will be liscensed under the halo of the firm so you really dont need a resume or credentials. Hence all the crooks developing a bad name for the honest folks in this business.
I personally started this business when my best friend decided to open his own mortgage firm. We had grown up together and worked at least 10 jobs together throughout our friendship. He graduated college a year before i did and started mortgage lending with a local bank. I graduated a year later and around that time a few investors offered to open a net branch for him. Naturally, i joined the business with him and the rest is history.
Its a great business with limitless earning potential. The only drawback is you cannot garauntee yourself business; you have to go out and find it yourself. A lot of people do not survive in this business for that reason. 100% commission can be scary when you cant find clients. This is why ive found it essential to find invesntment clients. We build an honest relationship and they use me for all their transactions. Its great fun!
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