Home Equity????

[DementedReality]

Originally Posted by Dominicwasalreadytaken

Well, I'm not an expert by any means, and I know there are far more effective strategies available than the one I use. I just do what I do because it's easy, stress free and fairly conservative.

This is how it all went down for me. Again, there are better ways to go ahead, but here's what I did.

Phoned up ATB, asked them what kind of a product they have for a HELOC. We set up a time for ATB to send an appraiser to my house to determine its worth. The value came in at 336k. My mortgage is approximately 160k. So after reviewing my credit (sparkling, btw) they decided that they could lend me 75% of 336k (252k) minus my current mortgage (162k) which worked out to be 90k. Now, the important thing to remember about HELOCs is that you only have to pay the interest on them every month. So a negative cash flow, if you have one, will not affect you, as the HELOC will just swallow it up.

So I signed the papers, became the proud owner of a 90k HELOC and went house hunting. I managed to find a great deal on a house, the purchase price was 237k. I wrote a cheque for $59,250 as a downpayment on the property. -Aside- the banks don't seem to like giving mortgages for second properties if you can't put 25% down on the purchase. And assumables are not what they used to be, so it's hard to get away from putting 25% down as a downpayment.

Anyways, as far as that one house is concerned, I signed a mortgage with Scotia for the amount of $177,750, and have a balance on my HELOC of about 62k (there were lawyer fees, renovations, etc involved). Scotia takes each monthly mortgage payment directly out of my HELOC, and the rent money I take in goes directly into my HELOC.

The rent money does not completely cover the mortgage plus the interest on the HELOC, so my HELOC increases by about $150 every month. At the same time, though, my mortgage decreases by a couple hundred every month, so I'm getting ahead on the mortgage (barely).

So, in the end, I've got a mortgage and a HELOC tied into that house, but they take care of each other, so that my personal finances are not affected whatsoever.

I've done another deal since that first house, but getting into that will just confuse the issue. The above is the easy, stress-free way of doing it.

interesting ... and to summarize, you owe
~160k first mortgage and declining
~60k HELOC and inclining
~178k second mortgage and declining

you must have a very good salary to qualify for that much debt? it doesnt cause you any stress to carry so much?

[V]

Like I said, the HELOC and the second mortgage take care of each other. No stress involved. I couldn't have done it if I hadn't left a nice margin of 20k between what I borrowed from the HELOC and what I was allowed to borrow. The way I set it up, the HELOC can increase until the end of time before it eats up 20k.

I don't know if my wage helped me get my second mortgage. I know I have fantastic credit, and that helped, but to be honest, the banks offered me another mortgage on another house without blinking as well. I think the 25% downpayment pretty much guarantees I can get that house.

[Sylvanfan]

Well if you take no risk, theres no reward.

My buddy took risk and reaped rewards.

I didn't, and If I continue on my current pace I'll have to work till I'm 70 just to have enough money to keep me alive to the age of 95. And thats assuming I contribute $1000 a month indexed in today's money towards RRSP's and average a 9% annual return over the next 40 years. When I found that out it really opened up my eyes...Even without taking on any risk I'm essentially fata'd anyways.

[DementedReality]

how do you calculate the interest only portion of a HELOC?

is it this simple?

principle: $100,000
interest: 6%
Interest = $6,000 per year / $500 per month?

[STAMPEDRED]

pertty much!
All you really need to know is what you want to do, and let people who know how to do it pull it together for you. There's a reason for mort. brokers, lenders, attorneys, accountants. They are smarter than you (and me) so let them be and do their job which should maketh you a lootta casha!

(ecept realtors... don't especially like them!)

[photon]

Basically you'd get e line of credit or a 2nd mortgage to get access to that equity. Keep in mind when you do that your payments will increase so you have to be prepared for that.

You also have to identify what you want to buy. Just buying any $300,000 home won't do because the likelyhood that you could a) find a house to buy for that in Calgary that b) would be able to rent out and cover the mortgage is pretty unlikely, unless you put down a huge down payment.

But taking your example you'd put down $75,000 on the house and get a mortgage for the rest. So you'd also have to qualify for a mortgage on the new property. Once you purchase the property you rent it out for an amount that hopefully covers your mortgage, taxes, and a bit extra to cover future repairs and such.

But like I said, it's tough to find those in Calgary, Edmonton, Red Deer, and Lethbridge are easier. Edmonton is a good place IMO to invest IMO.

EDIT: Wow, beat to the punch many times over.

[V]

Yeah, I've been looking at Edmonton, but the tough thing is being able to manage the property. I don't know what property managers charge, but I'd have to think it would eat up that positive cash flow.

Brooks is actually a place that a lot of investors are looking at right now.

[photon]

Originally Posted by DementedReality

you must have a very good salary to qualify for that much debt? it doesnt cause you any stress to carry so much?

One thing that you can do in this area, if you get properties that cash flow a specific amount and work with a lender that will treat your properties as a portfolio, after you have 3 properties you can keep adding properties and they do not count them towards your debt servicing ratio. I know someone who has 67 properties all in his name and he still qualifies for each new one himself.

Don Campbell's book 97 tips for investing in Real Estate in Canada has more info on that.

[photon]

Originally Posted by Dominicwasalreadytaken

Yeah, I've been looking at Edmonton, but the tough thing is being able to manage the property. I don't know what property managers charge, but I'd have to think it would eat up that positive cash flow.

Brooks is actually a place that a lot of investors are looking at right now.

Haven't looked into Brooks, but you have to be sure that the area is good for investing in, do your homework on the economy, not just hearsay.

We're looking at property managers in Lethbridge right now and they're at about 8%, and I think I spoke with one in Edmonton that charged 9%.

Thing about using a proprety manager, it makes you look at it more like a business and forces you to run the numbers and get good properties that cashflow

[V]

8% of what? The rent money? If so, that's better than I thought.

[photon]

Yeah 8% of the rent. Most will also charge you for advertising when its vacant, and lots have all kinds of restrictions and rules.