Home Equity or Cash-out on a Fully paid home (Austin: real estate, foreclosure)

[austin_buyer]

I've bought a foreclosure home by cash last year and evaluating my options to take equity/loan on my home to generate some cash-flow for other investment options.

Can you guide me thru on the relevant/best alternatives for this? Talking to the BOFA and Chase reps didn't help as the options which they suggested seems to limit the amount I can take based on the home value as well as the interest rates they quoted are very high(~4.9%) compared to the typical market rates for mortgage.

[EzPeterson]

You might want to post this in the Real Estate or Investment forums.

My opinion? Bad math. Really bad math.

Paying interest on investment capital rarely ever ends well, particularly when that is secured by an asset likely to appreciate at a slower rate than the interest you're paying.

If you really want to make this investment - sell the house - never been a better time to do that in Austin than right now, or maybe 3 weeks ago.

No point in paying 5% and having to chase 12% ROI to net 7, when you can just chase 8 and find a more stable investment.

[Austin97]

Originally Posted by EzPeterson

You might want to post this in the Real Estate or Investment forums.

My opinion? Bad math. Really bad math.

Paying interest on investment capital rarely ever ends well, particularly when that is secured by an asset likely to appreciate at a slower rate than the interest you're paying.

If you really want to make this investment - sell the house - never been a better time to do that in Austin than right now, or maybe 3 weeks ago.

No point in paying 5% and having to chase 12% ROI to net 7, when you can just chase 8 and find a more stable investment.

Those numbers arent quite right. Lets say he took out 80% and the property is worth 100K.

He is paying 5% on 80K with a 20k investment. So 4K/year in interest. That might seem bad, except he still has the other 80K to invest. The key here is leverage. If he gets a 10% cap rate on the real estate then he is making 10K on the original property. That is a 50% return on his original investment (20K).

If he takes the 80K and controls 4 more properties with the same math then he is making a 50% return on his investments. Of course now he has more risk because of the leverage.

[centralaustinite]

Who gets a 10% cap rate on property in Austin?!

[EzPeterson]

He'd need to run a 15% profit net of operating costs to make that scenario work. Not impossible, but not likely.

[alwaysmiling]

Originally Posted by Austin97

Those numbers arent quite right. Lets say he took out 80% and the property is worth 100K.

He is paying 5% on 80K with a 20k investment. So 4K/year in interest. That might seem bad, except he still has the other 80K to invest. The key here is leverage. If he gets a 10% cap rate on the real estate then he is making 10K on the original property. That is a 50% return on his original investment (20K).

If he takes the 80K and controls 4 more properties with the same math then he is making a 50% return on his investments. Of course now he has more risk because of the leverage.

Do you really think securing 4 more properties in this lending environment is possible with that 80k outside of seller financing deals? I need an aggressive lender...