So when i first started i bought a duplex for $16,000 put $5,000 into repairs and went to a local bank that lent me a line of credit for 80% of the appraised value which was like $45,000 so i rolled that into my next property. Which i bought for $27,500 put another $3,000 into repairs and got a line of credit for $75,000 and have been keeping this ball rolling for 3 years now. The question i have is with the lines of credit im using the interest rate is variable and is 5%. Would i be better off getting a loan with a fixed term which i have the option at the bank to do. Should i do that? Makes it a little scary thinking the interest rate can shoot up to a crazy number and be sky high. Any Advice would be great.
Hey @Joshua D. , great question, and I love how you kept rolling your equity into acquisitions. I agree, it may be prudent to see if you can get some fixed rates while the rates are this low. If you are going with commercial loans, they may only give you a 5 year fixed period before the rate becomes variable, so keep that in mind. With commercial loans, if you continue to move forward with your acquisitions, you can always run your numbers at a higher interest rate and see if the deal will still be a deal if rates were to sky rocket as a worst case scenario, that way you can be fully prepared at the beginning of the acquisition to understand the potential issues down the line if it came to that.
@Dorothy Butala Thanks for the response, Im also gonna find out if there is a cap on how high they can go on the interest rate. Overall Im doing okay doing this the way i am correct? i feel sometimes they give me way more then the property is actually worth could that be? Any other advice would be great. Thank you
I just talked to my bank and they said the interest rate is based on prime and there is no limit on how high it can go up to. Am i doing this wrong? should i look into a fixed term loan instead of a variable rate revolving line of credit?
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