Equity

3 Replies

Yes.  The less equity you have in a property the bigger the loan, the bigger the loan, the bigger the payment, the bigger the payment the higher the risk will be of not being able to make the payment.   Of course, if you have two properties that are cash flowing nicely it increases your chances that at least one of them will help you make the loan (mortgage) payments.  

But that is mitigated by the fact that with more properties you have more chances of things going wrong since there are twice as many things.  

Okay enough with the convoluted explanation.  if you are acquiring something that is a good deal and will cash flow well or you are certain (after doing market research) it will appreciate nicely then it is probably worth it to take some equity out of another property to buy it.  People do it all the time, but people also did all the time prior to 2007-8 and lost their shirts doing it.  

Bottomline- for the right deal it makes sense to pull equity from another property, but only for the right deal. 

Yes, but as long as the first property is still cash flowing I'd do it in a second.  Equity is useless...it's a trophy.  You can't spend a trophy.  If you move the equity into another investment it is back in motion.  Then refi that property too, and repeat as many times as you can.  You will find that you will "use" those funds (now buried in equity) potentially any number of times, but if you refi it out at the last use, you will never spend it.

If you have to acquire new funds for each property you buy, that is a new set of funds that "is" spent, on each deal, all added up to a total amount spent for all the properties you end up buying.  Remember, you can accomplish the same number of houses by refinancing, but never actually spend any money.

Also keep in mind how long it will take the investor to accumulate the funds needed for each new property.

Joe Villeneuve
REcapSystem
A2REIC

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I think @Joe Villeneuve  

hit the nail on the head.  I think the people that lost their shirts overreached.  The more you have locked into absolutes (what you are going to pay, etc) and better you are prepared for issues (things will come up) the less chance you have of losing.  Everyone will have the own individual measure for risk that will determine their speed of growth, but at the end of the day, the more profitable places you can gather, the less risk you will have at the end of the day.

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