Posted by Ed Garcia on October 02, 1999 at 23:31:16:
Michael Clarkson:
First I’d like to say that, I answered that post in error.
That answer was intended for the post below by Paul Burgin.
After saying that lets talk about your deal.
Michael, it is true that most mortgage companies require a $50,000
minimum mortgage amount. The reason for that, is because they sell their
mortgages off and that minimum amount is easier to sell.
Another reason, is because much of their profit is based on points, and
most brokers want to make a minimum amount. There are other
reasons, but these two should do.
Now, fast lesson. There are two different types of loans that sound the
same but are not.
When we use the term CREDIT LINE we think that they are all the
same, when they are not.
You’ve heard the term CREDIT LINE, or EQUITY LINE because they
are both lines of credit. EQUITY LINE is a term that is used by most
lenders and yet the lending criteria can differ from lender to lender. The
difference between the two line will be reflected in the cost.
Banks will use the term EQUITY LINE in defining a credit line based on the
equity of your home… The fact is, that it’s a SECOND MORTGAGE with
credit line terms, allowing you to pay the balance down, and then use it
again.
Another CREDIT LINE which is truly a commercial line that I teach
people how to get, is what we call a WORKING CREDIT LINE, or a
LINE OF CREDIT. This line is designed to perform a specific task.
For example, if you owned a furniture store. It would be a line of credit
designed to purchase furniture as inventory for resale.
With that in mind, then why could we not obtain such a line of credit to
purchase houses. That would be the inventory of our business.
That would allow us to make CASH OFFERS, allowing us to cut a better
deal, FAST CLOSE, allowing us to cut a better deal, LESS COST, allowing
us to make more PROFIT, WHAREHOUSE property allowing us to
either resell or season our deal for permanent financing.
Now lets get more specific about your deal.
For starters Michael, let me blow you out of the water on the 125%
loan. that loan is not designed for None Owner Occupied properties.
That loan is for Owner Occupied only.
Next, you didn’t calculate your equity position properly.
The appraised value of your properties total $166,000.
The existing liens total $78,000.
Take the appraised value of $166,000 subtract the existing liens of
$78,000, that gives you $88,000.
That’s how you figured it, but that’s not the way it works.
A lender will create a loan to value leaving enough equity left in the
deal, for them to get out of the deal.
Just for fun lets say we could convince a lender to use just 80% LTV.
Remember this is a cash out on none owner occupied properties, so
80% would be more than reasonable.
$166,000 X 80% = $132,000.
$132,000 minus the existing liens of $78,000 = $54,000.
That’s on a good day. Real World Michael would be more like 70% LTV.
Now you mention that you have relocated to Hawaii. That’s going to
really excite a lender when they are going to be lending you money on
property in Oklahoma. Also you don’t give us any information on the
property in Hawaii, so I’ll assume you don’t want to borrow against it
probably because you don’t feel you have enough equity in it.
Michael, I hope I don’t sound sarcastic by the way I’m writing this
posting, but I want you to have a feel how a lender would view your
circumstances.
We also have not got into your income.
There are too many questions to ask, to know for sure what I would do
with this deal.
What are the rates of each property?
What are the terms and conditions of each property?
What is the rents of each property?
What’s your credit like?
I can tell you right now I would leave property # 1 out of the picture,
unless I just wanted to do a rate reduction, because there is no equity.
Property # 4 is the most desirable property for a refi.
I usually don’t recommend NOTES, because I can usually do everything
that they can do and more. But this is one time it might be interesting to
see what American Note would do with this deal.
If you would like to work with me, then call me at (909) 944-0199 and
We can talk.
Till then,
Ed Garcia