Equity Transfer

Equity, until it is liquefied, has little tangible worth. We still believe that "no money down" house buying is a myth but sometimes" equity transfer" can be as good or better. Here is a summary of a transaction we did last year where homeowners moved their equity from their "personal residence into investment property and eliminated their house payment in the process! It went something like this: Anne and Will had a house with a mortgage of $81,000 and a payment of $851. The Realtors (that would be us) found 6 duplexes for $554,000. We then worked out the following proposal. Assuming that their home would appraise for $245,000, they could refinance it, pay off the old mortgage and $10,000 of personal debt, and end up with cash of$101,000 (80% refinance). The new house payment would be $1663. They would apply for a first mortgage on the duplexes for $404,000 from a local lender. This payment would be $3242 (PITI). Finally they would ask the seller to carry a second mortgage of $80,000 with a payment of$643. Wow that's a new total payment of $5548. Here's the good news. Will and Anne have just purchased 12 units with a good rental history (3.8% vacancy) with rents of $6000 to make that payment. Do the math and remember that old house payment of $851 disappeared in the refinance of the personal residence!
Magic? Well not quite. This may seem like a complex transaction, but most of the details were worked out by the Realtors. On the bottom line, Will and Anne's family cash flow has improved by some $800, (the old house payment); they are now building equity in two properties, their tax picture has improved and they haven't spent a dime out of pocket. They have simply "transferred equity".
Scott Mikel & Associates is an independent broker in Clark Count. You can reach them at 360-816-8800. Where customer service is more than lip service.