If you have been investing in real estate you know that loan cost can really eat into your profits. If you are a first time real estate investor you might not have much cash to put down on a home. The home equity loan can help solve both of these problems.
When I started to buy my first real estate investment I found out that most lenders charge more for investor loans than for owner occupied homes. I don’t exactly know why investors have to pay more for the same home but they do. I decided I wanted to flip homes and I started to calculate the cost of doing one investor loan. Most of the lenders I talked to wanted to charge closing cost in the thousands and higher interest rates.
I decided that there had to be a better way of funding my flip. After all, why should I pay a few thousand dollars for closing cost and loan cost when I was only holding the property for a few months? I then learned that serious real estate investors use two types of funding for their flips.
I like to use my home equity credit line to fund my flips. The costs of doing a home equity line are only a couple hundred dollars at the most. My line of credit was free. I didn’t have to pay one dime to get my line of credit setup. The interest rate fluctuates and is usually a point higher than the normal thirty year fixed rate. The beauty of the credit line is that I can buy the home for cash and not have to pay loan costs each time I buy a home. Many banks will sell their REO’s at a lower price if you can close fast and pay cash. I did one deal where the bank called me in the afternoon and said if I could close that night they would take seven thousand dollars of the price. If I had to get a new loan I would not get the discount. Having a home equity line of credit is a great way to do deals fast.
The other option for fast money is a hard money loan. Hard money is private money usually allocated for real estate investments. Hard money lenders are charging very high interest rates but provide cash fast for all your deals. Hard money lenders are easy to find. Just find out where your local real estate investment club meets and go to the meeting. You will find many flyers of people who are willing to lend you money today. Read the rest of this entry »