Hot Tips for
Real Estate Investors
III. Sample Passages
(Discovering how to borrow on my
equity--it’s easy!--opened the door
to a great bargain which I would
have missed out on.)
Robert Thomson:
Let’s summarize, It’s 1989 and you
own three properties. You have sold
one. You live in another and you
rent out the other two.
Aqlim: The next
property I bought was with the
realtor himself.
R.T. How did that
come about?
Aqlim: The house
(on 70th Ave.) cost us $118,000. The
down payment was $30,000 or $15,000
each. I didn’t have this kind of
money so I had to come up with
something quickly. By asking around
I discovered that I could borrow for
one house by using the equity on
another house as a guarantee or
collateral. From the bank’s point of
view, if I didn’t payoff the loan,
they could take possession of the
other house. This was the first time
that I had heard about this but when
I looked into it, it made sense. It
certainly pays to ask questions!
R. T. How exactly
do you borrow on your equity?
Aqlim: I went to
the Scotiabank. I owed them the
mortgage on house number three. I
filled out the application and after
a few formalities they gave me the
money.
First, I had to pay to have house
no. 3 appraised (this cost $120.)
Second, I had to pay a lawyer for
conveyancing (this cost $600.). As a
result of these ‘formalities’ the
bank decided that:
House number three, which I had
bought for $75,000, was now worth
$116,000.
Since I owed $68,000 on the house, I
had an equity of $48,000 in it. In
other words, the bank reasoned that
since I owned 48/116 of the house,
they were quite safe in lending me
$25,000 (at 8.25% rate of interest)
because the house was there to back
up the loan.
The bottom line is that by borrowing
$25,000 on house no. 3, I got the
down payment for house no. 5. This
transaction cost me money ($720) but
it empowered me to take advantage of
an opportunity which otherwise would
have been lost forever. There is a
good lesson in this kind of thing.
House no. 5 was sold to Dick (my
realtor) and me by an elderly couple
who were getting tired of taking
care of the large lot and looked
forward to downscaling to a condo.
Dick was spending quite a bit of
time trying to persuade me how good
a deal the house was, so I finally
said to him, “If it’s such a good
deal why don’t you come in on it
with me?” He agreed and proposed a
30% (him) / 7O% (me) split. Then I
thought, “30% is not enough. Why
shouldn’t he pay 50/50 so that if I
sink, he will sink too?” He agreed
to pay 50%.
(pp. 34-36)
|
|
|
 |
|
|
|