House A Collateral
Does it make sense to pay $14,000 for a house in my home town(20% down makes the payments $72) if I only want to use it to borrow money against to invest in rental properties?The reason why I ask is the bank tells me I have to be an "Owner Occupant" to get a loan and first off, I don't live there, secondly, as long as they get there $72.00 per month,why do they care?
I have been employed by a bank on two occasions in my life. The first was a summer job in which I trained and performed as a teller. I hold the record even to this day as the teller who never closed his cage with a perfect balance. I wrote a bank difference every day that I was employed. Meaning I failed to balance. It was during this period of time I first became aquainted with an interesting document found in every Bank of America. The Standard Operating Procedure. A book of rules. To succeed in the world of banking you must follow the book.
Bankers follow the rules. The rule is if a man has a home and he owns that property he will fight to the bitter end to keep it regardless of the economic conditions around him. That is why a bank when lending their funds prefer always to loan on a mortgage to a householder in residence.
Of course when a bank is building portfolios of loans to sell and pick up points of discount etc. The rules get bent but even then they require if a purchase at least a 10% down payment.
Almost all bankers trying to create a career in banking take Institute Courses and in these courses teach the conservative approach to lending.
The founder of Bank of America, did not follow such rules and that is the basis of his success. Everybody else did, but he looked at the man and made the loan. Too bad he is not here now.
The rules are bent many ways. The man with the eight grown kids. They all live in his houses and all applied for loans as owners of the houses in fact all are on title but with secondary Quit Claim Deeds back to him and then each has recorded a Life Estate Interest in the property. Tricky and clumsy but one answer to the problem.
Other then the extended family approach there is the Family Trust, an interesting document that makes it possible to hold properties in a Trust but when you buy new properties you can get consideration in the interest rate as the Trust usually has a fantastic credit rating. The bank may insist on a 20% downpayment at time of purchase and then allow you to obtain equity loans with an attractive interest rate. Especialy if you revolve your rental income through one of their accounts or hold your uncommitted capital in one of their Certificates of Deposit. The secret of course as in most capitalistic countries is have a friendly banker for whom you do favors, elect him to the board of the Country Club, his wife becomes a bigshot in anything from the Garden Club to the Little League Parent Group. Whatever. Rule no. one. The Banker when he plays cards with the boys, never looses. Cheers Lucius
14k aint much... if you have good credit... go elsewhere, check around, go to a mortgage broker get private money and make it work or put more down or a little higher %age for non owner occupied property.... make it work , if you want it