Use Home Equity to Buy More Real Estate Investments

this is real estate rookie episode 196. [Music] my name is Ashley care and I am here with my co-host Tony Robinson and welcome to the real estate rookie podcast where every week twice a week we bring you the inspiration information and motivation you need to kick-start your real estate investing career and I love Saturdays because we get to switch things up a little bit right we get to dive into some of these questions but before we do Ashley just tell us what's new with you what's going on what's new in your neck of the woods um not much actually of the last couple episodes we talk about my knee surgery we talked about a new deal I'm looking at um so yeah really nothing else new that I can think of um what about you Tony yeah um for me we actually just lost out on a uh on a property um it was in a new market that we're looking at and uh we put up twenty thousand dollars as our EMD and um with everything that was going on it's it's new construction and the way they set it up was that you have to get a loan to purchase the land and then you had to get a secondary loan to cover the construction so it was like really weird how they had it set up um but you know with everything we had going on we like totally dropped the ball and remember that we need to get this financing for the loan or for the land because we got this under contract like I don't know maybe seven months ago um you know and I'm like hey it's time to start and it was like this mad scramble to try and find a lender but the lender that the Builder recommended didn't want to lend to us because they said that we were Overexposed with short-term rentals in our portfolio they're like this is for someone that like this is their their first short-term rental XYZ and it was really weird we went to like two like three different lenders in that same city and they all said the same thing but I guess what's happened is that in that town in that region there's been just like this boom of new construction of short-term rentals so I don't know why but I guess they feel that there's less risk lending than someone that doesn't already have short-term rentals but in my mind it would be the other way because if you have short-term rentals you know what you're doing you know so anyway we end up yeah we end up having to back out of that deal because we couldn't get the financing in time for the the construction start date and now we're um possibly going to lose our 20 000 EMD so we're going back and forth with the uh the Builder to see if we can get it back from them okay well first of all that's awful that's a lot of money to lose but can you tell everyone what an EMT is your earnest money deposit explain that how that process works and why you might not get it back yeah so thank you for asking that question so your your EMD stands for your earnest money deposit so a lot of times when you look to purchase a property the seller will ask for an EMD or an earnest money deposit to show that you have in like you know even though you're pulling let me take a step back plenty of people can submit an offer on a property right but some people are Tire kickers some people just want to lock the property up to see what happens so a lot of times sellers will ask for an earnest money deposit to show how serious you are as a buyer and the way that it works is the earnest money deposit is whatever amount you and the seller agree to could be as low as you know 100 it could be as much as twenty thousand dollars or maybe more and that money gets deposited into escrow so the seller doesn't have access to those funds it's held in escrow um and then typically there's a certain point in your contract where your earnest money becomes non-refundable which means that if you back out of the deal for any reason you don't get that money back to you it actually goes to the seller but if you cancel before that date then you as the buyer get your earnest money back um so we're in a situation where our our expiration date for their spending deposit passed um so it was considered hard right so your money goes hard your EMD goes hard after that expiration date um so now it's really up to the sellers to you know decide if they want to be nice or not or they just want to keep our keep our twenty thousand dollars yeah I recently did and a fifty thousand dollar earnest money deposit on a property they originally wanted three hundred thousand dollars when you deposit and so um we settled on a 50 and what happened was they it was a bank that was selling this property and they just wanted to like push like we want this a quick close blah blah so they're like we won't accept you know any more than 30 days due diligence like no more than that and this was a massive property with so many different Avenues so what my attorney did when he structured the contract as he said okay the 30 days actually starts when you send us the title work so that way it actually gave us so much more time we ended up having we ended up taking two months and we still had more time locked because the bank's attorneys just took so much time to get the title work done and send it to us so we actually and we ended up backing out that deal because of multiple issues but um we were able to get our deposit back uh pretty quickly and like that was such a a key thing that my attorney did was put in these little like little loopholes where you know it's on them like yeah we'll give we'll take 30 days due diligence but um that's time isn't going to start until we have all of the information we need to actually you know understand the property yeah yeah we did it we did something similar for our Big Bear hotel where we set it up to where the due diligence period didn't start until we got all of the financials back from this oh yeah so that didn't that ended up giving us like an extra like I don't know I think like 14 days or something like that so there's some ways you can you can kind of kind of stretch true but same for us in that deal we put up fifty thousand dollars in EMD as well and that went hard a little over a week ago so now you know for whatever reason this big brother doesn't work out we're we're out we're out 50 Grand so we'll see it will though cool yeah hope fingers crossed we're making good progress so yeah um awesome but today's question actually comes from my DMs and um you know if you guys ever want to get your question featured on the show you can go to the website rookie Facebook group The BiggerPockets forums or you can slide them under Nationals DMS we pull questions from from all those places um but today's question I actually don't know who this came from so I apologize in advance if uh if you hear this question that sounds familiar because I just took a screenshot of the question but I forgot to get the the person's name but it says hi Tony I need your advice I have a good chunk of equity on my home do you think it's wise to pull some cabs from my home to purchase an investment property if not what do you suggest I do with that Equity Ash why don't you why don't you kick us off here what are your what are your thoughts on this equity okay well we know interest rates are going to lose radius two more times this year so if you are going to pull any money out now is the time to do it so you basically have two options um the first option is you can actually go and re-mortgage get a whole new mortgage on your property so I would look at what is the current interest rate on your mortgage now can you get a lower interest rate if you go and refinance right now or is it going to be higher so it's going to be in higher interest rate don't remortgage keep the mortgage that you have on the property and then look at a line of credit so pulling out a home equity line of credit on your property and since it's your primary residence you'll usually get uh good terms a good interest rate and some banks will actually do like a promotional period where maybe for the first six months the first year you're only paying you know 1.99 or 2.99 on that money for those for six months and then it actually goes variable so I would definitely only look into a line of credit or to remortgage and refinance and pull that money out I think it also depends what you're using the money for too so if you are going to purchase property and you end up um you're maybe gonna flip it so you're going to make your money back right away or you're going to bur it where you're going to go and refinance that money and pull it back then you want that line of credit so you can just pay the line of credit back and then you've got that money again to go do the next deal but if you are looking for a down payment maybe or maybe you're looking to just purchase a property in full and with no um you know expectation of going and refinancing anytime soon then I would go ahead and re-mortgage the property instead of pulling out uh that line of credit yeah actually I think you hit everything just like in the nail on the head with everything you said um I you know I probably wouldn't refinance in today's environment assuming that you have a better interest rate like I know for us like when we bought our primary residence it was like three percent was our interest rate and if we try to refinance today you know it's like two and a half points higher yeah so it wouldn't make sense for us to refinance our mortgage um so I think your point of if if you can if if your plan for the capital is something that's short with a quick turnaround time like flipping then a line of credit probably probably makes the most sense and honestly that will probably be my Approach right now anyway and you can get um a better low own to Value too because a lot of times they'll lend you up to ninety percent ninety five percent of the loan value so say your house is worth a hundred thousand and you have a mortgage of sixty thousand on the property already they're gonna give you a line of credit for that other what is that thirty five thousand the math right give you a line of credit um up to that 95 uh percent loan to value um so that's definitely an advantage too is that doing a line of credit you'll be able to pull more money off you can also do a home equity loan where you're actually pulling the money out they're going to amortize it for you over so many years you're going to get a fixed interest rate and then you just make those monthly payments so it's almost like a second mortgage on the property where the line of credit you can the money can just sit there on the line you can pull it off as needed and you're only paying interest when you use it and then if you pay the money back the money is still there for you to pull off at certain times so you just have to watch when that line of credit expires when the bank can say you know what we're actually closing down your line of credit I remember during covid a lot of people started pulling all their money off their lines of credit afraid that the banks were going to shut them down and close them off so they were trying to pull their money off before the bank said you no longer have access to this money yeah actually I mean I think you I think you literally said everything that I was going to say so I don't I don't think I have a whole heck of a lot more to add so hopefully again sorry that I didn't grab your name but hopefully ever ask this question uh we gave you a good response and I got some ideas or at least some flexibility in terms of what uh what strategy you can use with that Equity you have set in your home Tony usually if we um if I pull someone from my DMs after re-record I'll send them a message saying just so you know your question was answered on this episode so you can send that to them so they can watch you forget their name I apologize in advance thank you guys [Music] see you guys on Wednesday [Music] foreign

Channel: Real Estate Rookie

Views: 8,493

Keywords: how to use home equity, buy rental properties, buy real estate, using home equity, home equity, what is a home equity loan used for, using home equity to buy another home, using home equity to buy investment property, real estate investing, rental properties, rentals, real estate investor, how to invest in real estate, home equity line of credit, heloc, heloc rates, interest rates, mortgage rates, cash out refinance, cash out refi, invest, biggerpockets, real estate rookie

Id: X187XLVo3pA

Length: 11min 58sec (718 seconds)

Published: Sat Jul 02 2022