250k House Paid-Off + 800 Credit Score gets me what ??

Question

Once upon a time I had paid my house off and now I am selling it in order to get the money out and buy a few rental properties, while this real estate market is down ! If my house does not sell what options do I have ??

My main focus is to buy REO/ForeClosued/Fixer Uppers type of houses and rent them for the next 4-5 years and when the real estate market recovers..I am thinking 2012-2015..I will sell the houses and cash out.  Hopefully I will at least double up on my 250k ...Any opinions/advice ????

Renting it out ?

I was thinking of taking a loan out on it in order to get the equity out ...should I do that ?

Also, I believe my house will fall another 25-30k within the next year or so...BUT it has not fallen as much as most properties in the usa..I live in NW Suburbs by Chicago ! :D

Will Barnard · Answer

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Jim Wineinger · Answer

I wonder about the HELOC. I agree that it is a good way to go, but be sure that you look at all the fine print.

In mine there is a clause that states that the monies that you get from the HELOC can not be used to purchase another property. Not sure how they could tell this but it is there. Maybe that is why that persons 300k Heloc was called due because it was the same bank and they could prove how the funds were spent!!!!

I purchase properties at tax auctions and my bank wanted to call mine due to to purchasing a property and when I informed them that I am not purchasing any properties (just liens on the properties) they had to relent.

Now due to the foreclosure process on those liens I have a couple of properties in my name that were purchased with those HELOC funds.

Jonathan Rexford · Answer

HELOC ok.  Going to banks for financing...to me is a personal decision.  Try to learn how to raise private money.  I don't mean HARD MONEY.  I mean get money 6-8% from folks that are getting killed in CD's and Money Markets.

Possible uses of HELOC...feed your business.  I am a huge fan of having your personal home paid for.  My way of thinking is that if you lose everything at least you have your home.

Again this is just an opinion.

Mike Henderson · Answer

Interesting situation.  An enviable one at that as well.  A few comments.

1)  Sell your house?  I actually like that idea.  I like it because you expect another 25-30K decline in the next year.  If this is correct it makes sense to take money off the table.  If it is a home you love then don't sell it.  If you want to upgrade your home in any way bigger, nicer, newer, better location etc.  Then it makes sense to sell.  Make sure you understand all the transaction costs moving, closing costs, commissions etc.  You not only have these when selling your house, but buying your new one.

Getting access to credit.  -  This is a key point.  Most lenders have some type of time restriction on when your house is on the market until you are able to refinance your house.  Countrywide is 30 days and there are among the most forgiving.  This means that if you try to sell your home and you fail to do so it must be off the market for 30 days before you can attempt a cash out refi.  Most banks are much longer.

The heloc idea.  Probably the best.  Let me add a couple of caveats.  Banks are still locking and closing these at this time.  What that means is that let's assume you get a line of $200K 80% LTV.  You buy one house with 40K down.  Your thinking great you can go buy 4 others.  There are rules about acquiring more than 4 properties with mortgages that are acquired by Fannie/Freddie.

I've also heard stories about HELOC's.  The worst is the associate who had a 300K HELOC.  The bank called it due, swiped 200K out of his account (it was the same bank).  Talk about a bad deal on both sides.

PM me if you would like more details.

Stacy Dieckman · Answer

Faraz,

Are you a member of a local real estate investment group?  If you are not experienced in doing rehab maybe you can team up with someone who is and be the money.

As a Hard Money Leder you can get a good return and by teaming with an experienced investor he/she may already have an exit strategy in place limiting your risk and giving you experience.  If things go south you at least have a house you would have bought anyway.

Just a thought,

Stacy

Alex G · Answer

I would NOT sell your house.  It doesn't affect your leverage much (just taxes and insurance).  If you invest creative you rarely have to put much if any money out of pocket.  I completed 1 flip and in the middle of another in Philly both just paying closing and carrying costs.  If you do rehabs you roll any construction costs etc into the loan based on ARV (after renovated value).  For example say you get a short sale for an as is property for 30k and it's worth $100k ARV rehabbed.  Let's say you get a 70% ARV loan which will give you 40k to renovate the house non out of pocket.  If it takes 2 months to complete the project and 1-2 months to sell that's 4 months carrying costs.  If I were in your situation, if you have no assets I would get a HELOC to draw from.  And if you work like I do, get involved with local real estate investment groups and get ideas what people are doing locally and nationally.

Norm Chrostowski · Answer

"Johnny" on the spot as usual

Jon Holdman · Answer

If you have something to add, Neil, please post it here.

Neil Thakkar · Answer

Hey Faraz,
Get in touch with me as I am from Chicago as well.  I live in the Northwest Suburbs and I think I might have a very good option for you.  I have been investing in real estate for well over 2 and half years.  Currently have over 25 properties and working on an 84 unit building.

Will Barnard · Answer

I agree with the HELOC suggestion. You can get the very best borrowing rates via a HELOC. Just make sure you make wise investment decisions as your ability to pay the HELOC interest is dependent upon the investments you make.

250k House Paid-Off + 800 Credit Score gets me what ??

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