What Is A Line Of Credit

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Line Of Credit

What Is It?

A line of credit is a type of loan, where the bank determines a limit amount. It differs from a normal loan in that it allows you the borrower to use the money available in the line of credit (LOC) at any time and then repay the amount outstanding at the your discretion.

Home Equity Line of Credit

Often the first form of this type of loan that a property investor discovers is the home equity line of credit. A home equity line of credit is sometimes referred to as a HELOC.

This is where the lending institution vvalues your home and uses the difference between the current value and the amount you owe on your home to calculate how much they will make available to you based on the equity you have in your home.

For example if you have a home valued at $500,000 and you owe $200,000 on it, the equity you have available would be $300,000. Your lending institution will then agree to loan you up to a limit amount determined by their lending criteria.

Why Would You Want One?

The first and most compelling reason why you would want to have and use a line of credit is the freedom and flexibility it gives you.

A conventional loan is linked to a specific purpose.

With a line of credit the lender has agreed to loan you a certain amount of money, but you are free to use that money for any purpose you decide, and you have the flexibility to draw upon your available balance at a time that suits you best.

You can use "draw downs" to fund the deposit and purchase costs for the purchase of property to meet a temporary shortfall in cashflow for funding the monthly payments on your property loans or to fund a tax free life style that the increasing values of your property portfolio will enable you to live.

See These Related Articles For More Information

Using The Equity in Your Home

Wikipedia - Line Of Credit

Wikipedia - Home Equity Line of Credit

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Freedom Steps With Property Investing

Real Estate Investment Property can give you Financial Freedom

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Financial Freedom Is Within Your Reach With Real Estate Investment Property

Financial freedom can be yours with real estate investment property.
You can have financial freedom, sooner than you think. Here is a quick overview of how to do it.

1. Start with an evaluation of your current financial position. See this real estate investment finance for an effective strategy to get favourable (lending) results from a bank or other financial institution.

How To Build A Cash Flow Model For Your Real Estate Investment Property

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By Joe Tosolt

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About To Start Investing In Real Estate?

Are you about to start investing in real estate? Or perhaps you've already put your toe in the water but want to learn more. Here is an overview of the factors you need to take a look at in order to project your potential return on an investment.

• Purchase price - obviously, the amount of money you put out for the property is significant in determining your investment outcome.
• The annual appreciation rate at which you expect the property's value to increase.
• How many years you expect to hold the property. Combined with the 2 figures above, this will enable you to estimate a future selling price.
• Number of rental units, and rent you expect to receive from each unit.
• Annual rate of rent appreciation.
• Expected unoccupancy rate - it's important to remember that tenants come and go, and will occasionally leave you with empty rental units. It's best to plan that into your projection.
• Any miscellaneous revenue you anticipate (laundry facilities, etc.), and the rate at which you expect those revenues to grow.
• Property management fees. Even if you expect to manage the property yourself, it's best to budget in an allowance for professional property management. First, this rewards you for the time and effort you invest. Second, it ensures that you are covered if for some unanticipated reason you need to turn the management over to a pro at some point in the future.
• Last, but not least, you need to know your opportunity cost, something that big investors would call the 'cost of capital'. For example, if you can earn 5% by keeping your money in the bank, you're going to want a lot more than 5% for taking on the risk and time investments required by a rental property!
• Annual operating expenses, and the rate at which you expect those expenses to increase over your term of ownership.
• Property taxes and rate of annual increase.
• Insurance and rate of annual increase. It's critical to insure your substantial investment!
• Any miscellaneous expenses, and rate of annual increase.
• Depreciation expense. To determine this, you'll need to estimate the building's assessed value as a percent of the total purchase price.
• Your annual capital investments in the property. You were planning to budget on capital improvements, weren't you?
• Downpayment - how much cash are you putting in upfront?
• Bank fees - how many points do you expect to pay, and what closing fees do you expect to incur if you will putting a mortgage on the property?
• What mortgage interest rate do you expect? And how long will the payback period be?

Now that you've got all the numbers laid out in front of you, you 'just' need to build a financial model which will allow you to project cash flow throughout your ownership term, and then use time value of money calculations to create a present value of those flows. Compare the present value of your future cash receipts against the amount of cash you will outlay upfront. If it's greater, congratulations- you have positive Net Present Value, and this property looks attractive. If the result is negative, it's a red flag-- you need to take another look, because this may not be a good deal for you.

The obvious comment you might have is... "This all sounds awful hard! Aren't there tools which can help me?"

The good news is that there are! In fact you can use an online investment property calculator which will do all of the heavy calculating for you. You simply plug in the numbers, and review the results. Now THAT's some smart investing!

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© 2007 All Rights Reserved

Here's some great news: thorough financial analysis doesn’t need to cost a lot of money or take up much of your time. The Real Estate Genius investment property calculator runs the numbers and calculates the cash flow instantly– you just gather the facts, and plug in your assumptions.

Joe Tosolt is the president of Real Estate Genius, LLC, which empowers property investors with fast, powerful tools for performing discount cash flow analysis and projecting financial returns on prospective property investments. Learn more about this easy-to-use tool at Real Estate Genius.

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Article Source: http://EzineArticles.com/?expert=Joe_Tosolt
http://EzineArticles.com/?How-To-Build-A-Cash-Flow-Model-For-Your-Real-Estate-Investment-Property&id=510360

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Real Estate Investors - Three Basic Types of Banks for Your Real Estate Investing Needs

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Real Estate Investors - Three Basic Types of Banks for Your Real Estate Investing Needs

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By Chris Parks

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There are many different types of banks and when it comes to lending money to real estate investors, each serves different customer needs. For our purposes, we will divide banks into three main categories: Nationwide, Regional, and Local.

Many of the nationwide banks offer several lending products to assist homeowners, commercial investors, real estate developers, and more. These large institutions provide many consumer and commercial mortgage businesses with several options. In the beginning however, for the most part they offer little or no flexibility for the short term real estate investor. Do not totally discount them though because once your business is established you may be able to secure a business line of credit.

Regional banks are smaller and often have several branches spread across one or perhaps several states. Local banks are similar but normally have even fewer branches than regional banks. These are the two types of banks that provide real estate investors the best options. Why?

Because these are portfolio lenders, which means that these banks hold the loans "in house" (as opposed to nationwide lenders who normally sell the loans to a secondary lender). This gives smaller banks the utmost flexibility to set terms and guidelines. They will often determine whether or not to loan money after they assess a borrowers' financial situation and the deal. These lenders will require a borrower to fill out a loan application, provide tax returns and pay stubs; they will also analyze a borrowers' credit. Likewise you can arrange a meeting directly with the President of the bank or the person who actually makes the funding decisions.

For the most part, this is not a quick process. It will often take 30-60 days for the process, especially for first-time borrowers. However, the overall costs and rates are comparable to the larger banks as opposed to fees imposed by Private Money Lenders.

It's worth noting too that not all regional and local banks operate under the same lending guidelines. Because they are independent of larger corporations, they have different underwriting rules, lending criteria, and risk evaluation. They also offer different rates and fees. Real estate investors need to first find the right kind of bank to borrow from and then find out what the lending requirements are to see how you can match those requirements.

The easiest place to find out which banks have the type of product(s) you are looking for is to go to the real estate investors who are already borrowing from them. Attend your local Real Estate Investor Association (REIA) meetings to find other investors who are borrowing money from local or regional banks.

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Updated Site! Visit http://www.REIforNewbies.com for all your Real Estate Investing Needs. Wholesaling, Rehabbing, Money Articles, Where To Start Reports and Much More - A Perfect Resource for Beginning Real Estate Investors plus up-to-date Real Estate Investing Tips for Experienced Investors as well. Take A Look! http://www.REIforNewbies.com

(c) Copyright - REIforNewbies.com. All Rights Reserved Worldwide.

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Article Source: http://EzineArticles.com/?expert=Chris_Parks
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