So I'm seriously planning to expand my investment portfolio in 2018. I currently have around $450-500k in equity. My question is, if I were to access this equity via an equity line of credit from "lender A" to use towards the down payment on a multi-family apartment building (for which the additional debt of a million plus dollars would be borrowed from "lender B"), is this "down payment" in the new multi-family apartment deal essentially "equity" that I can access again to use, for example, as yet another down payment on another deal, ad infinitum? Or, are there limitations to this strategy? Or is the initial equity essentially tied up and unavailable to for subsequent deals until it is paid off to the initial credit equity line lender?
I appreciate any insights, first hand experience, direction, etc., that may be offered. Thanks in advance!
@Josh Deel “Or, are there limitations to this strategy? Or is the initial equity essentially tied up and unavailable to for subsequent deals until it is paid off to the initial credit equity line lender? “
Think of it like a credit card except it’s tied to your property. You pay upon what you use and have access up to the limit of the HELOC. Pay it down or pay it off, then reuse. HELOCs have a draw period which the period you are able to access/withdraw the available credit. During the draw period your payment is also interest only payment.
Any outstanding balance after that draw period will be need to pay principal and interest till it’s fully paid off.
I think I understand that within the context of credit cards, what I’m asking is, as long as the initial equity line of credit is being paid on the down payment I have in the deal is my “equity”, right? Could this be pulled out from the newly acquired property to use yet again in another cash flowing property as another down payment? Apologies if I’m not understanding or clearly conveying myself.
Unless you are the federal government, no, you have to pay back/down the line of credit before it can be used again. The line of credit is a loan that has a maximum draw amount.
I understand the original amount borrowed has to be paid, and it will, to “lender A”. But once I have the new property for which I use my initial equity as a down payment, the money that is now parked in the new property is my equity, regardless if I had hard cash to put down or drew from other properties, correct? So, assuming I’m still paying on the initial line of credit, why couldn’t I take out this equity- not from the original property I had equity in to make the original credit draw but the new one I just got?
Because lenders don't finance 100% and they require you to have skin (equity) in the game. That's what down payments are for, whether they come from using a line of credit or with cash...does not matter.
And, you can't borrow the equity you have in your existing property(s). You can borrow some % of the value of that property(s), let's say 75%...and your cash out will be 75% of the value less your existing loans (if applicable).
Right, so even though we’re talking about a different property now, the cash I put into it from my equity credit line isn’t going to be “equity” in the truest sense if I wanted to use it again on another deal, even to a new lender?
I suppose the only way this would work is if I used my equity to outright buy a deal, not just make a down payment on a bigger deal, then immediately after closing get a traditional type note on the new property and thus “replenish” my initial equity to repeat the process. This would certainly reduce the size deal I could hunt for.
Excellent point, good tip! This is the type of back and forth I’m looking for. I want to make the best next move possible, with the latter steps in mind as well.
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