Flip Or Refinance?
Is it better to just sell a property that you just rehabbed and pocket the money, or hold the property you just rehabbed, rent it, refinance it, and use the refinanced money to buy the next property??? Also, will banks let an investor get an euqity line on a rental property???
I like to rehab and hold myself. Many people will rehab and hold and also rehab and sell one outright to generate extra cash occasionally. I have never tried getting a equity line on a rental but I heard of someone saying they did that one time. It would seem that any equity line you might get would be at a higher interest rate than you could get on your personal residence so I can't see what you would gain. If you cash out try to keep it at 70% or a max of 80%, that way you can get a better interest rate and it is simply safer. Lots of people have gotten themselves in trouble by pulling out the max amount of cash and then having cashflow problems later on.
All depends on what your strategy and plan is. As for banks who do equity lines on rental property it all depends on how long the title has been seasoned. I just took out a HELOC on a rental property after only having title for a few weeks. Not many lenders would touch it since they require 6 or 12 months of seasoning; however Bank of America had no problem with the title only being in my name for a short time.
Good luck,
PD
Pardon me, may I insert a question?
On the front end of this situation, to get INTO rehabbing: if you, say, hypothetically <cough cough>, own a townhome with 20K equity--is it wise to use that for startup (down payment, materials, tools, etc)? That seems to me to be a better option than going to another private lender for money ?? But then I'm new here...
Also, I have heard bad things about using one property as leverage to purchase the next: if one building falls, they all "come tumbling down" (if I'm not mistaken this is what happened to fair Mr. Trump?)...is using the refinanced money the same thing?
Roar,
aslan
Cashflow is the problem that people can get into when they refinance one property to get another. You can actually increase your cashflow through refinancing one property and buying another but you simply need to keep a high cashflow on each new property to cover possible unexpected expenses and vacancies. If you have a small cashflow on several properties you can end up paying out money whenever you have a vacancy which could get you in a bind. The cashflow problem also will decrease statistically as you get more properties. If you only own 5 houses, it is not out of the question(although extremely unlikely) that all 5 could be vacant at the same time. Carrying 5 notes could be tough,even for a short period. If you own 10 or more houses and they are all vacant at once you obviously have something more than just bad luck going on.[ Edited by davmille on Date 02/26/2004 ]