I need a Houston-area finance genius to let me buy them coffee

[Andrew Taylor]

Although my BP post count is climbing, and my knowledge is increasing, my portfolio is still at zero - and I'm afraid it will remain so until I start to get a grasp on financing techniques. I would absolutely LOVE to get together, face-to-face, with a Houston-area investor who can answer actual questions based on my actual situation and help me get a grip on how I might be able to take the next step. Willing to trade coffee, lunch, and/or beer as necessary.

Anybody interested? Feel free to reply here or PM me.

[Naeem Kapasi]

Hey @Andrew Taylor. If I understand you correctly, you want to know more about how to finance an investment property. Have you thought about creative financing? @Brandon Turner wrote a pretty good book on that, "the book on no and low money down". I am actually reading it as we speak, and I think there are some good nuggets in there - you might want to check it out :)

[Andrew Taylor]

Not exactly.  I already have a bit of creative financing worked up, I'm just not 100% sure of the mechanics. Someone to help explain terms to me. The bank offered me something I'm not quite sure of the consequences of.

[Andrew Taylor]

Okay, so the woeful response to this post makes me think I probably worded it poorly. I have a hard time believing there's literally nobody on BP that knows the answer to my question. So let's try again. 

Say I want to buy a $100,000 property. I have zero cash, but I have lots of equity in my home. The bank says, "We'll take the equity in your home in lieu of 20% cash down payment." 

What does this deal look like? Am I borrowing $100k, or only $80k? When is the equity on my personal home "released," so to speak? In other words, if I have, say, $200k in equity, when I do this deal does my equity position go to $180k, or $0k until the debt is satisfied? I'd like to be able to use that $180k for other purposes without having to wait until the loan is paid off. 

These are just some of the questions I need answered before I can proceed. Thanks in advance for your help. 

[Bill Spell]

I wouldn't consider myself any kind of financing genius but if you need to use the equity in your home as your primary means of financing real estate investments, I would think you should look into a Home Equity Line of Credit (HELOC). With that in place, you can draw down what you need when you need it and pay it back as you make profits.

[Account Closed]

Originally posted by @Andrew Taylor:

What does this deal look like? Am I borrowing $100k, or only $80k? When is the equity on my personal home "released," so to speak? In other words, if I have, say, $200k in equity, when I do this deal does my equity position go to $180k, or $0k until the debt is satisfied? I'd like to be able to use that $180k for other purposes without having to wait until the loan is paid off. 

These are just some of the questions I need answered before I can proceed. Thanks in advance for your help. 

 Usually banks are pretty specific. However, let's be clear. If you're buying a home for $100,000 and putting no money down, someone is scratching a check for $100,000 to the seller. I'm sure that somebody expects you to pay them $100,000. I'm not aware of any finance deals out there where the bank covers your down payment...

If you were to borrow 20,000 against your personal home. Than you would have a second note. I use equity in my home to buy homes for flips. But I wouldn't use it as a source of long-term financing. That's what a mortgage is for.

[Michelle Williams]

I'm also considering using my personal home equity to fund deals. Both home equity loans and HELOCs are second lein positions, otherwise know as second mortgages (in which that term may lends itself to somewhat of a negative connotation IMO). BUT! if you are using that second mortgage to temporarily fund purchasing (real estate) assets, it's all good! What's the purpose of the 100k home you are buying? rental, flip? banks will typically allow loan amounts 80% LTV minus mortgage balance, so depending on what that amount equates to for you, you can take it out at one time with a fixed rate and term in the form if a home equity loan, or over time as a HELOC (typically variable rate, shorter term, but sometimes only requiring interest only payments on the amount drawn). if you are renting this property, the rent payments can pay the second loan note during the seasoning period until you can cash out refi into a new mortgage (using the cash to pay off your equity loan/line)...then rinse and repeat! of course there are several nuances to this whole process, I recommend reading Brandon Turner's book The Book on No or Low Money Down, there's a specific section on home equity in there. I hope this helped, good luck!

[David Wicks]

I echo the HELOC strategy. It's the one I'm going to take and have been approved and should close in less than 30 days. Read up on them so you fully understand it though!

[Andrew Taylor]

Folks, sorry I've been absent a while, but I see I need to clear something up.

I understand how a HELOC and cash-out refinances work. That's not my question. My question is (or rather, was), once I collateralize my personal home, when is it released as collateral? Turns out, that can be written into the loan docs of whatever I'm using the equity to purchase.

We're in a weird situation. We built a cabin on our land that was supposed to be my workshop, then were forced to move into it due to a job loss - but it's not our "main" home. (Well, it's our main home right now, but it won't be our main home forever. We hope.) So, if I collateralize my residence, then when it comes time to actually build our "main" home out front, I don't want the mortgage lender to say, "Whoa, you've already got a big outstanding loan on that property, so we can't make your construction loan."

But, as I said, I sort of answered my own question by bugging a local banker. If I use my residence as collateral, he can write into the loan doc that that collateral is released after X months of regular payments.