Unlocking Your Equity and Using It Wisely
Financing investment property right now can be difficult, especially if investors are trying to use stated income loans, or have a number of properties on their credit reports. Lately, several our investors have found they can take advantage of their home equity at a very low rate, 3.99 - 4.25% at the time of this writing.
Warning: Investors should be responsible with their equity, HELOCs should be used to increase your wealth, not advance your lifestyle. It is important to keep in mind that even though you are tapping into “your equity”, you are still borrowing money. As with all real estate investments, equity isn’t fully realized until you sell. So before borrowing, you should analyze the numbers and make sure you will be profitable. If you are paying 4% for your HELOC you should be getting at least a 7% cash-on-cash return on the new investment. Cash-on-cash return is the ratio between the property’s cash flow and the amount of the initial investment in the form of a percentage.
Annual Cash Flow / Cash Invested
For example:
Let’s say you borrowed $40,000 at 4%, your monthly payment would be approximately $133.
You then take the $40,000 and use it as a down-payment on a $200,000 duplex. The duplex has a cash flow of $400 per month. Your cash-on-cash return would be 12%.
Pretty sweet huh? We have a ton of great deals that offer a strong cash-on-cash return like the example. I just got back from an exciting market that offers a 40% cash-on-cash return your first year!
Investors that have money and are able to put down 20% - 30% on deals are going to get some great buys. Call me to find out more.
Skyler Moore
YAERD.org Investor Relations & Project Management
Skyler [at] yaerd.org
312-265-8417
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