Using Lines of Credit for Buying Real Estate - When to Refinance...


I have a secured credit line of one million dollars. Through this credit line real estate was purchased and the entire credit line was used. The value of the property purchased today is 70% of credit line. The credit line is secured by my brokerage account as collateral(60%) and by a CD of (40%). Should I free my collateral by obtaining long term financing and continue to use rent to pay off debt?

luis@wealth-stepsLUIS COMMENTS...

I would need a bit more information in order to be able to give you a better answer but still I can only give you my opinion since there are several strategies that you could use here and it really would be up to you to choose the best depending on your other personal factors

First thing I would look at would be the terms for your line of credit. When would it be due and what interest rate are you paying? Then compare that to long term financing. I also have a line of credit and know that the interest on the line of credit is lower than on long term financing but the line of credit is 20 year (I think) vs. long term financing that can typically be up to 30 years.

Another detail you have not provided is whether you own residential or commercial property. That can make a big difference on what kind of long term financing you can get.

Another question I have for you is, why do you want to free your collateral? Is it because you want to use it for something else? The answer to this question would also affect your choice.

Not knowing all these details I would be inclined to think that you would be better off seeking long term financing, that could make your monthly payments lower and then you can reuse the line of credit to purchase more real estate if you wish. I've done this several times both on flips and rentals.

This was a rental...

And these were flips...

I hope this helps...Feel free to provide more details and maybe we can reach a better answer for you.

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