Need to Borrow $$ - Debt ratio too high, but own houses - Advise?

[White Doors]

Originally Posted by photon

Man if 3 houses is overstretching, I'll have to let my friend who has 47 know he has to slow down!

Well he is obviously more financially healed than this poster asking the question. You should ask your friend if his debt/equity ratio is over 40%

obviously it is not.

[V]

I guarantee you that if this guy owes 47 houses his debt/equity ratio is greater than 40%. There's just no way you can own that many houses without getting a ratio that high, unless you've owned them for 10 years or more.

It just doesn't matter what the ratio is, as long as you don't have to go to the bank with hat in hand praying for some more money. The banks aren't the only ones out there willing to lend you enough money to put a downpayment on a house. The banks also don't always give out the best interest rates, either.

[White Doors]

Originally Posted by Dominicwasalreadytaken

I guarantee you that if this guy owes 47 houses his debt/equity ratio is greater than 40%. There's just no way you can own that many houses without getting a ratio that high, unless you've owned them for 10 years or more.

It just doesn't matter what the ratio is, as long as you don't have to go to the bank with hat in hand praying for some more money. The banks aren't the only ones out there willing to lend you enough money to put a downpayment on a house. The banks also don't always give out the best interest rates, either.

Debt/equity ratio absolutely DO matter.
If it is too high then you DO have to go to the bank with 'hat in hand'. If you're debt/equity ratio is that high, then you can get a loan from others, but the interest rate will be higher than what a bank will give you.

I bought my home not even 2 years ago for 200K and now I could sell it for $330k. That certainly helps my ratio and the same thing would apply to the person who owns 47 homes.

[photon]

He still has to think about his debt-equity ratio, and his income-debt servicing ratio.. but of course income from and value of the properties factors into things as well. Obviously with 47 he's quite well off, but when he only had 5 he for sure wasn't.

And there's nothing "wrong" with going over one of those numbers, it doesn't mean you are over reaching yourself, it just means you have to pay close attention to what you are doing.

[V]

Well, I can only speak for what I see, but I see a guy in my office that bought 18 properties over less than 2 years, and didn't use a single dime of his own money. All he had was about 200K of equity in his home. You wanna tell me how he possibly did that without getting into a ridiculously high debt/equity ratio? Houses weren't selling for 5 dollars.

[White Doors]

Originally Posted by photon

He still has to think about his debt-equity ratio, and his income-debt servicing ratio.. but of course income from and value of the properties factors into things as well. Obviously with 47 he's quite well off, but when he only had 5 he for sure wasn't.

And there's nothing "wrong" with going over one of those numbers, it doesn't mean you are over reaching yourself, it just means you have to pay close attention to what you are doing.

Oh, I agree 100%

[White Doors]

Originally Posted by Dominicwasalreadytaken

Well, I can only speak for what I see, but I see a guy in my office that bought 18 properties over less than 2 years, and didn't use a single dime of his own money. All he had was about 200K of equity in his home. You wanna tell me how he possibly did that without getting into a ridiculously high debt/equity ratio? Houses weren't selling for 5 dollars.

With this real-estate market? very possible.

[Sample00]

Originally Posted by Draug

Hey folks,

I need to borrow about $100K to finish renovating a property, and consolidate some debt. However, our debt to income ratio is too high, and I dont qualify for the regular Home Equity Line of Credit from my bank. What are some other ways to get this amount of money, without paying an extremely high interest rate?

In a nutshell, here is the picture:
Home 1 - $400K resale, no debt against it whatsoever
Home 2 - $330K resale, $140K HELoC against it
Home 3 - Mid Remodel, Going to be worth about $350K, $50K HELoC against it.

There are the same 3 Co-Owners on each house. One is retired, and the other two are gainfully employed. But, the two of us who are employed have our own houses, and mortgage payments, in addition to the houses above, so our debt ratio is too high to be approved.

Anyone in the Home Equity business? Anyone have any ideas as to how to borrow against the houses?

I called a mortgage broker today, and the LoC they had we would be approved for, but the rate was 10%.

ING Direct will allow you to go to 65% of value without income varification. must have stable employment and good credit score.

[Draug]

Originally Posted by White Doors

Well he is obviously more financially healed than this poster asking the question. You should ask your friend if his debt/equity ratio is over 40%

obviously it is not.

It is not my debt to equity ratio that is the problem. You'll see in my first post that the 3 houses in question are worth over 1.1 million, and will only have $290K in debt against them, after I get the recent $100K financing.

It is the debt to income ration that is the problem. Because 2 of the 3 owners are self employed, and the third is retired, there are a variety of reasons why that is the case.

Contrary to some thoughts in this thread that we are over-extended, we really arent. There is less than 30% of the equity in these homes tied up in debt, and that is no problem. If the financial picture for us drastically changed, we'd have to sell one of the three houses to be out of the woods. Even if the bottom fell out of the realestate market in Calgary, we could sell two, and still be out of the woods - and that is if the market cut itself in half of what it is now. If it dropped more than that, we'd all have way bigger problems than some debt.

I will look into ING direct, as the above poster mentioned. It looks like it is between them and Aaron Acceptance. I've ruled out the private investor approach, and decided on a HELoC or a mortgage, because we dont plan on flipping the property as soon as the renovations are done.

[Claeren]

nm