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Equity Loans on Rental Property

Thursday, February 4th, 2010

Equity loans on rental property is another possibility of this astonishing and diverse instrument but specifically, can it help you in your situation right now? Absolutely, but certain conditions must apply in order for this to be a fruitful transaction otherwise, it may be considered too risky.

Perhaps, one of the most noteworthy aspects of the home equity loan on rental property is the possibility to improve on the actual property itself! Under these circumstances, you can see it’s real potential to increase the properties equity overall and to possibly even raise the rents!

The true key is to be able to either raise rents before the note is taken out and the renters are well aware of an increase, or set them at a certain level assuming they are vacant. Either way, this can pay for the excess cost that the equity loan charges you for and even put money in your pocket in the meantime!

Some of the potential downside characteristics are that the rates may be a little higher than regular home equity loans, but many are marginally more at worst! Moreover, if you don’t utilize the note for improvements on the structure: you could be ‘hanging yourself out to dry’, and causing negative potential consequences, assuming your income is lower than your overhead, including the loan.

Some other conditions to consider is that some lenders require that you actually live in the building before approving the loan. Furthermore, if you default on the loan (which you shouldn’t do), you could expose yourself to tenant litigation due to the bank foreclosing on a place in which they currently live.

Nonetheless, it’s simple math, do you have enough funds to cover this additional expense and what are your direct intentions for the money? If you can logically verify this information, and deem it to be a legitimately sound transaction, you then should obtain the equity loan to ultimately benefit your financial state.

Finally, if you choose wisely, there are very few loans out there that can be as powerful to the borrower, so take advantage of the rates, while they are still very low!

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