Home Line of Credit

[holymoly]

QUOTE (jessandy @ Oct 22 2009, 08:47 PM) I was under the impression that Real Estate is such a great investment because of the leveraging capabilities (paying 10% down gives me 30% ROI instead of paying 100% down and getting 3% ROI). Its the only investment that banks will give you their money for....why don`t you want to leverage out?
Its rarely a problem (in my brief Real estate experience) to use a Home Equity Line of Credit as a down payment. That`s how I bought my last property with no lender issues. This allows me to use my one HELOC to buy several properties at 20% down instead of buying 1 property at 100% down.

You don`t need cash for a downpayment, you can just use your HELOC as the downpayment, especially if you don`t already have many rental properties, it should be easy.... is there something I`m missing?

why don`t you save the rest of your LOC and only use part of it for this next property as a downpayment? (perhaps a LOC secured against your house is different from a HELOC?? if so, transfer it over)
Interesting points. I`m a bit confused, though. I`d say I am leveraging by using the LOC to buy the house -- paying 0% down and getting a cashflowing property. After this deal, I`ll still have a healthy amount unused/available through the LOC, so I`m not maxing it out with the one purchase.

For me, with this particular deal, I decided to finance the entire cost using the LOC because I want the option of paying interest-only, to keep the monthly costs as low as possible to start off.

 

[manojsingh]

Please rethink with the financing option. When ever there is bank involve in mortgage you have somebody who is having same interest in the property.Since this is your second property i will not recomend you 100% LOC. One example last year I put offer for one townhouse in Brampton but after submitting my application to CHMC then I got information that CHMC will not approve this complex so at the exit point its tough selling. I rejected the deal. Apply for bank mortgage even you do not need that . You have the option to reject the loan offer after getting approval from bank. In this way you will be 100% sure that in future if you want to sell bank will approve this for your buyer.




QUOTE (holymoly @ Oct 23 2009, 09:18 AM)
Interesting points. I'm a bit confused, though. I'd say I am leveraging by using the LOC to buy the house -- paying 0% down and getting a cashflowing property. After this deal, I'll still have a healthy amount unused/available through the LOC, so I'm not maxing it out with the one purchase.



For me, with this particular deal, I decided to finance the entire cost using the LOC because I want the option of paying interest-only, to keep the monthly costs as low as possible to start off.

 

[AndyLuchies]

QUOTE (holymoly @ Oct 23 2009, 12:18 PM)
Interesting points. I'm a bit confused, though. I'd say I am leveraging by using the LOC to buy the house -- paying 0% down and getting a cashflowing property. After this deal, I'll still have a healthy amount unused/available through the LOC, so I'm not maxing it out with the one purchase.



For me, with this particular deal, I decided to finance the entire cost using the LOC because I want the option of paying interest-only, to keep the monthly costs as low as possible to start off.






By bying every house with a mortgage you ensure that for each penny you put down, you get MUCH more in return. Think of the LOC as the bank on your house, essentially you're borrowing from your own house....so not leveraging bank's money so much as leveraging your own. By doing this as little as possible (10-20% down) you will be able to stretch your money over many more deals, thus leveraging your own money to the max.



BUT when you get a mortgage on your new property you're getting the banks money VERY cheap and in exchange giving the bank a controlling interest in the property. This is, in theory, what make real estate so wonderful. I can use the banks money to make money by mortgaging each new property, instead of using my own money to make money.



By the way, if the property doesn't work out to positive cashflow with a mortgage on it...its not worth buying anyways.



The way that you are doing it, you are maximizing cashflow for each property (because your expenses are the lowest possible), but having 100% of 1 thing (no leverage) is not nearly as good as having 90% of 5 things.



Additionally, why do you want to pay interest only? With a mortgage, your expenses don't increase over the long run because you still get all that principle mortgage payment portion back when you sell or take out equity of your new property. Essentially its a forced savings plan, forcing you to pay off the mortgage and build equity, forcing you to buy better properties that cashflow even with a huge mortgage on them.



I hope this is making sense. It all comes down to "how hard do you want your money to work for you."

 

[AndrewHanson]

QUOTE (manojsingh @ Oct 23 2009, 10:22 AM) Please rethink with the financing option. When ever there is bank involve in mortgage you have somebody who is having same interest in the property.Since this is your second property i will not recomend you 100% LOC. One example last year I put offer for one townhouse in Brampton but after submitting my application to CHMC then I got information that CHMC will not approve this complex so at the exit point its tough selling. I rejected the deal. Apply for bank mortgage even you do not need that . You have the option to reject the loan offer after getting approval from bank. In this way you will be 100% sure that in future if you want to sell bank will approve this for your buyer.


Hi Manoj,

Sorry to go on a tangent here, however, what was the complex in Brampton that CMHC did not want to insure?



What were their reasons?



cheers

 

[holymoly]

QUOTE (jessandy @ Oct 24 2009, 06:48 AM) By bying every house with a mortgage you ensure that for each penny you put down, you get MUCH more in return. Think of the LOC as the bank on your house, essentially you`re borrowing from your own house....so not leveraging bank`s money so much as leveraging your own. By doing this as little as possible (10-20% down) you will be able to stretch your money over many more deals, thus leveraging your own money to the max.

BUT when you get a mortgage on your new property you`re getting the banks money VERY cheap and in exchange giving the bank a controlling interest in the property. This is, in theory, what make real estate so wonderful. I can use the banks money to make money by mortgaging each new property, instead of using my own money to make money.

By the way, if the property doesn`t work out to positive cashflow with a mortgage on it...its not worth buying anyways.

The way that you are doing it, you are maximizing cashflow for each property (because your expenses are the lowest possible), but having 100% of 1 thing (no leverage) is not nearly as good as having 90% of 5 things.

Additionally, why do you want to pay interest only? With a mortgage, your expenses don`t increase over the long run because you still get all that principle mortgage payment portion back when you sell or take out equity of your new property. Essentially its a forced savings plan, forcing you to pay off the mortgage and build equity, forcing you to buy better properties that cashflow even with a huge mortgage on them.

I hope this is making sense. It all comes down to "how hard do you want your money to work for you."
Thanks for taking the time to spell it out. I see what you mean now.