Hi Everyone,
If you really wanted something, and you were able to get this “something” for free, would you take it?
Take a moment and think about that. I am not trying to trick you. I would hope that your answer would be an astounding….”YES!”
You are in for a treat because I am going to give you this ‘Something’!
This ‘something’ is advice!
Not any old advice, but advice on real estate!
This post will be the first of many posts devoted to answering questions from you, the readers of First Rental Property. Moving forward, I will also be asking some experienced real estate investors to provide their answers to your questions. This will allow you to have a diverse array of opinions.
Below is an email that I got from one of my readers today. They were asking for my opinion on a number of topics. I thought that it would be best to publicly answer all of these questions so that more of you could benefit from reading these answers.
So here we go. Here is the email I got today…
To protect their identity, I will be referring to them as….”Reader”
Reader:
“Hi Neil
In 2010 I purchased my first rental property! I used the equity from my primary residence through a SLOC to put a 25% deposit on my first rental property. Now that I am enjoying being a real estate investor my husband and I would like to purchase two other single family homes within 5 years.
The SLOC that I have is 150k some was used for the deposit and the rest personal use. Now my question for you:Does it make sense to consolidate the SLOC and my current principal residence mortgage (3.5% variable term ends 2014) and change my mortgage to a re-advancing mortgage (pay applicable penalties), then wait to accumulate the necessary funds to purchase investment property # 2 and then repeat the process again? does this make sense or is there other ways of doing this?
Neil:
Secured Lines of Credit (SLOC) are nice, but readvancable mortgages (a.k.a. matrix mortgages) are even better!! For those of you that do not know, there is a difference between regular secured lines of credit and matrix mortgages. The basic difference is that with secured lines of credit, your available credit limit is capped. Whereas, with matrix mortgages your available limit continues to increase as you pay down your mortgage. All things being equal, for every dollar that you pay down on your mortgage, you gain an additional dollar in credit. Bottom line this means that as you pay your mortgage down over the years, you have a lot more credit available to you. For example, if you paid your mortgage down by $10,000, your credit line portion will increase by $10,000.
This is a sweet deal for real estate investors! Essentially, as you pay down your mortgage, you are generating more funds through your secured line of credit that you can use to invest in real estate.
The reader asks:
“Does it make sense to consolidate the SLOC and my current principal residence mortgage (3.5% variable term ends 2014) and change my mortgage to a re-advancing mortgage (pay applicable penalties), then wait to accumulate the necessary funds to purchase investment property # 2 and then repeat the process again?”
Neil:
My answer to this all depends on how much available room the reader has on their secured line of credit. Personally, I am not a fan of paying penalties when you don’t have to. So, ‘Reader’, if you can avoid paying penalties, please do so.
If you have enough room on your secured line of credit currently to buy your second rental property, do it. You can always do this and then wait until your mortgage term ends in 2014. At this time, once the mortgage term has expired, you can then convert your secure line of credit over into a matrix mortgage and avoid paying any penalties. That is what I would do, if I were you…
Too often I see people get super impatient and want to buy so many properties in a short period of time. They get focused and buy, buy, buy everything in sight. When the dust settles one of two years from the purchases…they are left owning a pile of hot garbage. That is, their real estate portfolio resembles hot garbage. Vacant units, tenant evictions, under market rents, repairs and maintenance bills, and the list goes on…
The Reader asks:
“Does it make sense…to…repeat the process again?”
Neil:
I say, why the hell not?! If you want to keep on buying properties, and they are good properties, do it. That is of course, if that is what you REALLY want to do.
The Reader asks:
Final question: fixed rate vs variable what are your thought on that since the fixed rates are not a big difference to the variable rate mortgages.
Neil:
Variable.
Reader asks:
“BTW would you consider writing blogs on how to purchase your second or third rental property”
Neil:
Reader, that is an interesting question. My answer to that is no. What I might very well do is write blog posts going forward on why people should not buy their second or third rental property. Thanks for the idea! Stay tuned, and thank you for the questions Reader. I hope that I answered all of your questions. If not, please let me know!
What do you think about the ‘Readers’ questions? Do you have similar questions yourself? If so, let me know, and I will either answer them myself, or have one of my trusted and experienced real estate investor friends answer the questions for you.
Until next time…
Neil.
ps: Do you know anyone that would benefit from reading my blog? If you do, don’t keep the blog a secret! Tell them all about it.
