home equity and rehab?

[Aaron]

hi people,

i am a carpenter and i bought a house a year ago for me and my wife, it is a fixer upper.  I bought the house for 225k and did my own work to it and last week was 1 year that i have been living here i just got it appraised and it was 355k, i almost fell off my chair i was in complete shock... Anyways i am really excited and i have such motivation to do this again, i dont want to sell my house that i live in but i want to buy a fix up home again and fix it up and sell it really quick. I would like to understand the equity process? am i able to take 100k out of my equity to start buying these fix up homes? i know how to look for all off them and i do all the work myself it is all about a money issue for me... what is your opinion on what i should do with all this equity?

if you can get back to me that would be great
aaron

[tedjr]

Howdy Aaron:

Several approaches here. Some say never borrow on home to do investments as you could lose your home with a bad deal. Others say get all you can borrow and leverage to the hilt especially while money is cheap. I have gone thru 18% loan times and today is cheap compared to deal we had to do then.

Perhaps somewhere in the middle may suite you best. With your good credit you should be able to borrow $50,000 on your home and get the rest you need from the bank on the  house you are going to rehab.

I over borrowed  and probably am still, but with my bad credit I have little choice but use hard money lenders at high rates.

I am excited to hear what you have done. Have you posted a success story on the site.

[Aaron]

HI TED,
no i have not posted a story here, maybe i will. Ted i understand what you are saying but can you define to me a bad deal just so i know what to expect? like doing to work and not being able to sell it? also you said not to borrow the money from your home, wouldyou agree not to do this to lets say buy a townhouse and rent it out? my credit score is low 700ish, anyways i respect your opinions

aaron

[tedjr]

Howdy Aaron:

The last bad deal I did I thought was such a great deal that I went in head first and got my dad involved too. He put up $15,000 to catch up the past due mortgage payments and an additional $25,000 for the rehab and we bought the house sub 2 the $120,000 loan giving us a total of $150,000 plus a payment of $1500 per month. We finally dumped the house so to get my dad's $40,000 back but he paid 10 payments out of pocket and lost $15,000.

Another bad deal:

2/1 condo I bought with hard money for $28,000 that I knew had to sell for at least $56,000 and the hard money appraiser said so too. The HOA dues were $200 per month and the HML payments were $400 plus. I had to put $2000 into the fix up plus the hard money fix up allowance of $2000. After 6 months on the market no takers and I was behind on the payments facing foreclosure. The rehab money did not include money for my labor either. I doped the price to try to sell fast and still no offers on MLS. Finally had no choice but to let it get foreclosed and lost a good HML and had trouble with my other lender.

I am glad I did not mortgage my car or house to buy these properties. I could have leased them out and lost money monthly but once behind on the condo there was no catching up unless I could have sold something else or borrowed more money.

Make sure you have several outs or exit strategies  especially if you have home equity involved. Do not lose your home to make a deal. I would rather pay high dollar HML rates instead of borrow on my home.

[Mortgages]

Congratulations!!!  You have seen the light!  You are very fortunate to have the ability to do your own work. This means that you will usually double if not triple your profits!!!

Fha 203k might be an opportunity.  This works for both primary secondary and non owner occ.  investment properties.  

Don't ever risk you own home with a home equity.  Not when these types of programs are available.

Regards,

Jason Shane

[DDavis]

It's tough to say "never" use your home equity for investing...  I have a Home Equity Line of Credit that I use to pay for rehabbing.  It's very cheap money and I don't have to hassle with the paperwork for a construction loan.  Banks tend to want you to use bonded and insured subcontractors, and banks want invoices, etc...  There's a lot of workers that I pay cash, they can't write an invoice in English and don't have a green card, much less worker's comp.; I'm not sure how you would handle that with a bank.

If worst came to worst, I could get a real job and pay off the notes

[ARamirez]

DD,

I like your style of rehab... I will for sure be employing some underutilized quality tradesmen from the south when I get to doing some rehab work. Ya just can't beat feeding sandwiches and kool-aid for lunch, a case of Coronas or DosEquis and $50 for about 10 hours of good work!

Heck you do that for 2 guys one weekend and next weekend you will have 6 waiting in the driveway at 7am with smiles on their face.