Home Equity Lines - An Investor Goldmine
September 21, 2009, Writen by: Chris Anderson, Ph.D
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In today’s very difficult financing environment for investors, a home equity line of credit option may be your best funding option for securing profits.
Let’s consider the following deal, which is typical in Tampa:
- Purchase Price: $55,000
- Rehab Costs: $10,000
- Marketing Costs: $2,500
- Net Resale: $102,000
The problem is how are you going to fund the almost $70K that is required to do this deal. Obviously, the profits are outstanding but the cashflow can be brutal, especially since it may take 5 months to close on your deal if you sell it to an FHA buyer (title seasoning issues).
However, let’s now say you have a lot of equity in your home but would like to make some extra cashflow. Here comes the use of a home equity line of credit to finance your purchase. Suppose that you had enough to do 2 deals simultaneously with your line of credit….. If you could turn those every six months, this would give you a profit of over $30,000 per deal or $120K of profit in a year. Not bad for a side job.
A Home Equity Line of Credit (HELOC) is a form of revolving credit that demands one’s home as collateral for the loan sanctioned. Many lending institutions claim to offer the best home equity line of credit loans in a variety of ways. While loans are available at variable interest rates, some come with attractive low introductory rates and a few with fixed rates. The choice is up to the individual home owner and investor.
When your considering your next investment purchase, don’t forget about your HELOC as a potential source of investment funds.
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