Home Equity

Traditional bank financing can be a challenge for anyone, especially those who need it for the first time. I was trying to get traditional bank financing to do my real estate deals when I was a self-employed contractor, but I was shut down. This is typical, since all self-employed borrowers are up against more stringent guidelines for achieving funding than W2 borrowers.

I just happened to take a real estate investing course to get some credits towards a real estate broker’s license, and the first day of class the teacher took our textbook and threw it in the trash. He asked the class how many of us owned rental properties. A few hands went up. He then asked how many of us had credit cards, and all the hands went up. Back then cash advance fees were almost nonexistent, which led to his next question: why weren’t we using them to purchase real estate, after all that was our business. We shouldn’t let traditional financing stop us, Realtors of all people, from buying real estate. He said it was like stockbrokers not owning stock.

That night I went home and I couldn’t sleep. I knew I no longer had a W2 and couldn’t get a traditional mortgage to purchase a fixed up rental let alone a “handyman”—a property that a bank won’t typically finance without a certificate of occupancy at the time of closing. So I checked with the bank to verify that if I did own a property “free and clear” (due to the fact that the acquisition and fix up costs would be on credit cards) that they would be willing give me 65-70% of the ARV (after repaired value) in the form of a home equity loan. Then I bought a property with credit cards …read more