When you invest in real estate, it's important to focus on your mindset. Having the correct mindset can mean success over failure. Check out this video from a successful millennial.
The video is located at the bottom of this article.
The millennial success mindset - Real Estate Investor
If you're an aspiring real estate investor, then you must know what is the type of credits available out there that you can utilize to invest like a millionaire.
So in this video, I'll be sharing that information.
Namaskar other words say good morning. Good evening. What's up? Everyone? I hope you guys staying home and safe.
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So I'll be sharing those details stay tuned.
Watch out till the end because there are a lot of things I will be covering in this video.
If you need to take up a pen and paper make a note of them because this is important. You need to know this has an investor.
So first of all, you need to know what secure line of credit also known as a home equity line of credit.
So basically it's like a credit card but Um, this is secured against your property.
So for example, if you own a property, let's say worth a hundred thousand and you don't have any mortgage on it.
Now, you can go to the bank and borrow money against that property.
So if you borrow a mortgage you have to pay monthly payments every month, but whereas you can borrow a line of credit secured Agonist that real estate property, so you, you will generally banks will give you depending on you know, every lender have their policies.
They might give you seventy percent loan to value or 75% or 80% So 80 percent loan to value line of credit.
So basically I'll be talking about advantages and disadvantages in a minute, but just you know to understand it this way the secure line of credit the HELOC means you get Like credit that is secured against your property.
So what are the advantages of doing this?
So first of all, as I said now, you're not taking a mortgage when you take a mortgage probably, you know, not probably actually you have to pay monthly payments every month principal plus interest.
So you will be paying compound interest throughout you know, it could be 35 years for any X.
Amount of amortization years, whereas when you're taking a line of credit.
So the line of credit is a kind of credit where you only you know, whatever the amount that you use you will pay interest on that particular amount.
So that's the biggest advantage now, you don't have to pay payments right away.
You only pay the interest on the amount that you So going back to the previous example.
Now you have that property hundred thousand and Bank gave you 70,000 line of credit so you have that credit with a limit of 70,000.
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So now if you are not using it at all like you don't need money at this point, you just have that credit accessible for you. You can use it whenever you know, you need money you need you whenever you have an opportunity. To invest in any property or stocks and anything when there is an opportunity until then you don't have to pay any payments. So you just have access to the money. That's a cool thing and the interest rates on this credit are way low, when compared to credit cards or even unsecured line of credits again, hold on. I'll be talking about an unsecured line of credits in a moment.
But generally, the interest rates are very flexible.
Very low when compared to other types of credit.
Typically they will be like prime plus 0.5 percent or 1 percent again, depending on which lender you're going with generally somewhere around that your interest rate will be so that's the second advantage and the third Advantage is, you know, you can even make a product that is mix and match.
So let's go back to the previous example again. In the hundred thousand property that you have now, you have a mortgage of or you have a bad depth that you want to pay back right away, maybe like 50,000.
So which means you need the money right away is 50,000 and you don't need anything more than that, but you want to have access to that money. So now you go to this lender and say hey I need a mortgage but with HELOC so basically what they do, you will get a product that is a combination of both mortgage and line of credit. So the credit now going back to the example again a hundred thousand if they lend you up to 80 percent loan to value then they can lend you up to 80,000.
So in from that 80,000 basically you can you will have an option again every lender has different policies, but generally, you will have an option to pick and choose let's say if you have that depth that you have to clear right away is 50,000 and you don't need that 30,000.
Now you can set up this 50,000 has a mortgage amount and have access to the credit of 30,000.
So basically this 30,000 you're not paying the interest again. I'm repeating the same point, but that's a big advantage. So you will have access to that kind of product.
So now the cool thing.
This credit card is whatever the amount that you have in the credit. You can use it.
Let's say now you have an opportunity to buy a property.
So most of the lenders do allow you to use that secure line of credit amount to pay for a down payment. So now you have another property that you're looking at you have a 200,000. Let's say for the sake of your problem that property needs a down payment of 20%, which is $40000.
So if you have 40,000 in your line of credit secure line of credit, then you can utilize that money and pay off pay the down payment for that property, which means that property technically is zero down for you because you're not using your money. I mean, yes, it's your Equity as but technically you're putting zero money into that second property.
Because you are borrowing money from this product and putting in there.
So that's another great Advantage. You can utilize it for Market Advantage.
You can have that advantage and you know, another Advantage is now when you have access to money when you're making offers you can make attractive terms and conditions to get a better price. So you can utilize that let's say you have a line of credit or maybe a hundred thousand or maybe 500,000 again.
That's another cool thing you with the secure line of credits.
They lend you they're credit limit will be based on your property. For example, if you're living in Toronto, you have a million-dollar property pretty much everything paid off. You don't have any mortgage now, you can borrow against it for up to like maybe 700,000 or 800,000.
So now you have this line of credit if you want to buy an investment property Maybe when you're buying it, you can make no condition offers to get a better rate. That's how people say cash offers most of the people use this line of credits to make those cash offers.
And again, once it's accepted if they can either use this all this money to pay the property and then go refinance it or they just use this as a contingency fund when there is an emergency. For example, if they have to close it quickly, they just use this money and pay it off and Then if they want to do some Renovations like BRRRR strategy if you don't know what's the best strategy. I made another video check out the I will leave the link in the description also on the screen.
So check out that if you're planning to do that or if you're planning to you know, renovate and flip the property then this is a great way you can have this access to the money and do the renovations and go, you know, sell it off or refinance and When you can pull the money-back again from that property and pay off this line of credit.
So that's another thing and also another Advantage, big Advantage is whatever the amount that you're using for other Investments because you're paying interest on that investment.
That is tax write-off what it means.
If you have this second investment purchased from This line of credit now you will be paying interest on this amount that you used for the down payment, right? So in the previous example 200,000 property now, you're using 40,000 from your first property line of credit and you're paying the second property down payment now technically the payments that you're paying for this property any income you're generating now, you have to show the expenses for this property, right?
So now even the interest on this property is also an expense again just a disclaimer. I'm not you know accountant or are any other professional mortgage agent or lawyer to suggest you what's the right way to do these things, you know before you make any decisions just talked to your professionals.
But again, I'm just sharing my opinions on what I know from my Journey.
So that's a tax writer back. X or you can write up sorry, but you can tax write-off amount. That's an expense for your investment income. So if you're in a higher tax bracket like me, probably, you know, you can avoid taxes you can lower your taxes you will be saving money on the taxes. So it will save you taxes.
And another Advantage is now let's say you're purchasing a property and has soon as you purchase most of the And you can ask the lender to set up a line of credit along with the purchase itself.
So when you're purchasing it, let's say you again going back to the same example.
Now you're buying a 200,000 property you pay 20% down and you have a mortgage of a hundred and sixty thousand.
So when you purchase this property, you can ask the mortgage agent or the bank to set up a line of credit attached to this property. T so when you're purchasing a new brand new property you don't have any limit on that credit on that line of credit which means technically your limit on that credit when you started is 0 but here's the tip has you pay down your principal, you know, you will be paying every month your monthly payments, right?
So when you pay those payments, you will pay interest and principal so that Principal amount whatever you pay towards your mortgage that will be accumulating into your line of credit. So basically they're giving you access to your principal and they're telling you to borrow more money. So in terms of line of credit again, if you utilize it in a right way, you can use that money to invest honestly, that's the game with all this, you know, how people grow their rental portfolio one of the way As you know having this kind of access to buy the property and not only investing this is another Advantage is you will have access to contingency fund like so what I mean by that, let's say you have this line of credit and your limit is increasing every month.
Now, let's say after a year or two.
For some reason, you have some kind of urgent expense that you need to spend on this property. For example, your roof is gone or maybe Your furnace breakdown already knows something up first. It's a property that always will have some kind of emergencies come up.
Let's see if you don't have any other cash but you have this particular expense that you can this particular line of credit you can use that so that's another Advantage you can use it for emergency needs so you can have them as a, you know contingency funds when you for a rainy day, you can say that's the right word to use so you can use it for a rainy day.
So, you know, there are a ton of advantages from what I have seen but also don't forget there are also risks that are you know involved when you use the when you, you know set up this line of credits secured line of credits before I get there. I want to share quickly about what's an unsecured line of credit, so probably you might hear these terms very often so A basic difference unsecured which means it's not secured Agonist anything.
So basically if you are a normal person if you're working as an employee or if you're self-employed if you go to your bank and ask them. Hey, I need some credit that's like an unsecured. It's pretty much again. Same thing like a credit card only difference between secure and unsecured.
This one is not lean against anything.
It's just based on your credibility they give you so basically on this the disadvantage of an unsecured line of credit is you will have lower limits because you know they're just giving you based off of your portfolio.
Typically the limits for this line of credits will be somewhere between fifty thousand two hundred thousand.
It depends on your property how much Equity you have on your property and the second dish.
The advantage with this unsecured line of credit is your interest rates are higher than the secure line of credit because a secure line of credit has security organized on real property. If you don't pay it, they have the property, but in this case, they don't have anything. So that's why the interest rates are higher than the secured line of credit. Generally, they are like three to four percent or maybe five percent again.
They're also not high has your credit cards.
Typically six to eight nine percent the line of code again depends on your credit as well. Like I have a line of credit of 60,000 from RBC the interest rate last time I saw it was like six points eight or six-point nine again. There is also a great Advantage with an unsecured line of friends as well. If you don't have one I strongly recommend talking to the bank to get a line of credit right away, but Because the reason you having access to that money is always a good thing has an investor not to buy a car don't buy cars or any liabilities.
But if you're only investor mindset get that if you are not an investor mindset, if you're like, you know if you cannot control your Temptations don't get the line of credits again, that's my warning but the biggest Advantage is like now has an investor you will be doing a lot of renovation projects. Right. So when you buy a property you will get 80 percent loan to value for the purchase property purchase price rental properties, but if you want to do some Renovations, like if you want to do a pull strategy as I said watch out that video what's a bold strategy, but if you want to do birth strategy or flipping you need money for the renovations as well after you purchase.
So when you get that money from if you have cash, that's awesome. If you don't have cash then secured line of credit is the First Source Second Source would be the Line of credit because it's just you take the money and use it and when you have the money back again, you pay back everything so pretty much you just pay interest when you are using it if that's way better than private lending because when you go for private lending the interest rates are higher and also you have to pay the broker additional fees and all so that's the thing with the unsecured line of credit. It's always good to have especially if you are an investor mindset, Go talk to your bank's get the unsecured line of credit and coming back to the risks.
So what are the risks involved again with the secure line of credit? The biggest risk is now you're borrowing against your property.
So which pins of course if you don't pay that money if you don't pay back or if you default on that the property that you secured Agonist Now because you use that money to pay some other property down payment has a down payment for some other property. Now if you default this that means you have to pay back that line of credit, so just now be sure that you're utilizing it for the right reason for the higher returns instead of for liabilities. So that's a big risk.
And another risk is if you borrow all the limit that you have for example if you have a hundred thousand Limit on your secure unsecured whatever the line of credit now if you're borrowing the hundred percent money from your line of credit there are chances for reducing your credit score. So be aware of that ask the lender whom you're you know, whom you have your line of credit with generally it's always advisable to use like up to 80 to 60 to 80% again until unless if you really need something But there it will effect on your credit score if you borrow all the money, so that's another risk and another downside of the secure line of credit compared to having a mortgage is sometimes the banks will change their policies.
So for example, right now, they're still allowing you to use the secure line of credit that has a down payment for other properties.
But again, what if the bank's change that policy now if they say that hey no. No, we are not going to allow of use line of credits has a down payment again.
It's possible that they can change those kinds of policies and they can you know to Implement any kind of changes or even the prime rate because the line of credits are variable which is like prime plus whatever the amount if the prime goes up, obviously your interest rate is going up. So that's another risk. So just you know, these are the three risks.
The major risk that I can think of again. If you know any other risks that you can think of leaving the comments below and also if any other advantages that you can think of using the line of credit leave in the comments below, but again, these are the things I would you know, the first thing I when I knew about this unsecured line of credits, I got it. I have an unsecured line of credit for me and for my have like a hundred thousand. Because I can use it whenever I need and also a secure line of credits again, I don't borrow for every little thing. I don't borrow for liabilities at all.
But I have a line of credit set up for all my rental properties, whichever the property that I have have a line of credit attached to it and I'm accumulating increasing my limit every day.
It's kind of I'm saving that for a rainy day or an investment opportunity.
So now I have a line of credit access if there is an opportunity that comes up. I will jump on it using this money.
So these are the advantages let me know what you think about this video. I know it's a long it's a lot of information to digest just take time, you know to do your research I would strongly recommend you have to know this information and just act on it because knowing is not what makes you successful.
Acting on it is what makes you successful and navigating through with you know, proper guidance is what makes you know successful. So utilize the credit with the right mindset with invested like a millionaire and let me know in the comments below what you think about this video if you like the video hit that thumbs up button and with that, I'll be taking off. Have a wonderful day.
How to use a HELOC and Invest Like A Pro
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