Financing in Falmouth>Question Details

Keith, Home Buyer in Falmouth, MA

USING EQUITY FROM ONE INVESTMENT PROPERTY FOR ANOTHER?

Asked by Keith, Falmouth, MA Thu Dec 31, 2009

PLANNING ON USING EQUITY FROM ONE IP TO FUND/PURCHASE ANOTHER, COULD YOU PLEASE TELL ME HOW TO BEGIN THIS PROCESS?? TAX BENEFITS? HOW MUCH IS TOO MUCH FOR DOWNPAYMENT? LINE OF CREDIT OR LUMP SUM?

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Lew Corcoran’s answer
BEST ANSWER
You can do a cash-out refinance on your current investment property and use the funds towards the downpayment and closing costs on the new investment property. The maximum you can refinance is 75% of the appraised value of the property.

Before you begin the process, however, you should get pre-approved for a mortgage for the new property to be sure you can afford both properties. You will have to put at least 25% down on the new property.
2 votes Thank Flag Link Fri Jan 1, 2010
If they are both investment properties you may be able to do a 1031 Tax Exchange. This would allow you to defer any taxes due on a gain and use the proceeds in the new purchase. You may or may not be able to keep any of the proceeds but it may put you in a position where you don't have to add any additional equity to make the purchase. There are rules around the timing of both transactions as well. It is important to identify properties you are willing to buy within a time window of the sale of the property currently owned. You need to have a plan in place when you sell. There are many attorneys, CPA's, and Tax Exchange companies that handle this. If you are preparing to sell soon I would be happy to meet with you and provide some suggestions.
1 vote Thank Flag Link Thu Dec 31, 2009
You can certainly do a cash-out refinance on your investment property. The max percentage can vary based on the number of units the IP consists of. Hopefully at the same time you would be able to lower your interest rate and/or the term of your loan to help you save money over the life of your loan. There are many different options, I would be happy to look at your current scenario and provide you different options to reach your goal of financing the new property. You can reach me at 508-509-0050 to discuss or email me through my contact information.
0 votes Thank Flag Link Mon Jun 10, 2013
Keith,
TD Bank will finance an equity loan/line on investment property. This would avoid the cost of a refinance (approximately $3000.00) which would need to be factored in to your cost estimates. Plan on a minimum of 20% down. If you currently have a rate of over 6% on your current IP than I would seriously consider refinancing. Also, many banks use a 40% Debt to income ratio when qualifying for investment property loans. Always put down the minimal down payment that will allow your property to float itself even if it is only by a small margin. IMPORTANT** If your potential property does not make money on day one, and you are considering a buy and hold than it is not the right property for you.
0 votes Thank Flag Link Sat Jan 2, 2010
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