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

Refinancing Real Estate Investment, Your First Step To Freedom

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Refinancing Real Estate Investment

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This Simple Technique Can Help You Get Your First Investment Property

And Then The Next And The Next...

Refinancing Real Estate Investment is one of the best ways to begin real estate investing and keep progressing in your freedom steps with property investing.

If you are just starting out one of the best ways to get the money you need is to use the existing equity you have in your home. The best thing about refinancing real estate investment is that it allows you to get started without having to find out of pocket money for the property deposit and purchase costs.

You do this by first refinancing your home.

There are two ways you can go about refinancing real estate investment property:

1. Use your home or other property to secure a loan for the next property.
   This is where you make a specific proposal to purchase a piece of real estate investment property using your home to secure the difference between the purchase price and the banks LVR (loan to value ratio) policy.
   
   This will end up in your home being cross collateralized with the associated future difficulties that can lead to.
2. Request your bank of choice to set you up a home equity Line of Credit.
   This is where the bank agrees to loan you any amount up to the limit determined by the available equity ou have in your home.

When refinancing real estate investment a cross colllateralized loan is the easiest to set up. It is probably the avenue that the bank or financial institution will assume you want to do it, but if you want to build a substantial real estate based portfolio, then request a line of credit be set up for you.

Then you will be able to access the money with ease and at your convenience.

For other advantages of a home equity line of credit or a line of credit generally refer to the HELOC page:

Lay the Foundations for Real Estate Investing Success

For the first investment property or maybe even the first two peices of investment real estate, a cross colllateralized loan is the easiest to set up. It is probably the avenue that the bank or financial institution will assume you want to do it, but if you want to build a substantial real estate based portfolio, then request a line of credit be set up for you.

Then you will be able to access the money with ease and at your convenience.

For other advantages of a home equity line of credit or a line of credit generally refer tothe HELOC page:
Home Equity Line Of Credit

A brief outline of the specific advantages when refinancing real estate investment are that you can start with little on no money of your own and as equity builds you can continue with your refinancing real estate investment properties and purchase more.

In this way Your asset base continues to grow, and it can all be funded by your growing equity base.

The way this works best is to always plan on holding your investment properties long term. If you adopt that attitude and ride out the occasional volatility of thte market then you are almost guaranteed success.

When refinancing real estate investment it is important that your first properties be new, so that you can claim maximum tax deductability for depreciation and expenses. You will need competent advice on this for your particular country and area.

See my other pages for tips on how to best set up your financing and reducing our tax burden in the asset building stage.

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