Options with home equity?

Question

This is just a thought let me know what you guys think. Not even sure if it can work. So if you know or have used this already please feel free to give your advises.

I have about 130k available on equity with my current house i'm living in. I have a home that i'm very interested int purchasing right now, a duplex that can probably bring in 1,600-1,800. I can use the equity on my house to make this purchase and all the rent will be cash flow. With this route i could recoup all my investment in 5 years.

Or should I use the equity on my house to make down-payments and purchase multiple duplexes.  i'm not sure how the numbers will look but if i can purchased 3-4 duplex i can come out better. but i'm not sure how that would work and how much cash flow if any would come out of it.

any advise is welcome.

thanks,

Martin Scherer · Answer

Just a thought and I know this doesn't happen but, well it does.  In 2005 I had more than 200,000 equity in my home.  I pulled it out via heloc and bought property with the proceeds.  Several places actually and I still have them today because they were cash flow positive and rising in value.  Then in 2008-09 the market crashed and I found myself with the home and all the rentals even those I put 20% down on underwater--alot.  It has taken until just recently for all those properties to be the same value I purchased them.

I had time on my side plus rentals with a very nice cashflow to pay for under performing properties .  Would I borrow via heloc to purchase rentals again, not only no, but hell no.  Now although they are back to the original value I have 10-11 years of depreciation so if I sold them with no appreciation and nothing I can exchange with I will pay taxes on the depreciation of those properties I bought with nothing down.  Not good. I could keep them but now they each need some serious upgrading to keep the rental  income at current levels.

There is much more to real estate information than simply buying with nothing or near nothing down and unreasonable spreadsheet projections.  The market does go up and it can come down quick.  I am fortunate that I understood from the beginning that leverage works both ways and it can sink you if you do not understand.  I was fortunate because I had resources but lots of newbies do not so think things through before you jump.

Toua Lee · Answer

what i would really like to know is, is it possible to use your home equity as a down payment? is the equity on your home liquidity? makes more since to use the banks money to make cash flow then to use my own.

if you have done this before or know of someone that has please advise.

Kendrick Walker · Answer

I've utilized equity to purchase other real estate.  It honestly comes down to math.  Best is to find an experienced local Lender who you really trust and lay everything out.

I started with Hard Money loans and then refinanced some to conventional loans while others I worked my butt off to pay off so I owned the property in full.  It was all math though, and I never bought anything that would give less than 7% return.

Hope this helps.

Best, Ken

Sun Pacific Mortgage & Real Estate

Thomas Dionne · Answer

we dont have the data we need. It all depends on what types of loans you get if you go the multiple units way and just use the heloc money for down payment.  (if you dont have heloc yet use tdbank, they are the best)

The bigger issue is if you want low rates that you can cash flow with you are talking regular real estate mortgages in which your DTI will be a factor.

You need a mortgage person who deals with investors to look at your income and credit to see if its even possible to finance multiples.

Thomas Dionne · Answer

we dont have the data we need. It all depends on what types of loans you get if you go the mutiple units way and just use the heloc money for down payment.  (if you dont have heloc yet use tdbank, they are the best)

The bigger issue is if you want low rates that you can cash flow with you are talking regualr real estate mortgages in which your DTI will be a factor.

You need a mortgage person who deals with investors to look at your income and credit to see if its even possible to finance mutiples.