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So, good friend of mine, hear what I say—namely that:
High-asset borrowers get more loans than low-asset borrowers because lenders believe that people with larger assets are more reliable and better loan risks. So hear the word and build your assets to the highest level possible. You’ll get more loans and reach your millionaire status sooner!
How to Increase the Value of Your Equity
The clear message for you in the last several paragraphs is:
Increase your equity in your present real estate holdings as quickly and as much as you can. Then your equity borrowing power will rise enormously.
“Yes, that’s a good tactic,” you say. “But how can I increase my equity to raise my assets and borrowing power?” Here are six lucky ways to raise your equity in any income real estate:
Six Steps to Increase Your Equity in Real Estate
1. Raise rents as quickly as possible once you buy a property.
Why? Because the higher your rents, the larger the mortgage payments you can make on a property, reducing your mortgage on the property, increasing your equity.
2. Make needed repairs on the property. You can do these yourself, or you can have the repairs done by an outside contractor. Just remember that every dollar you spend on repairs raises your property’s value by at least $1.33. So repairs increase your equity in your property.
3. Get every unit in the property rented. Being fully rented raises your monthly income and allows you to project a higher annual income. Lenders will apply a “5 Percent Vacancy Factor” to your Projected Annual Income when you apply for an equity loan. But the fact that you’re 100 percent rented will impress every lender and give your property a higher rating in their opinion—which helps you get a loan!
4. Give your property an upscale name. Use this name on all your loan applications. Names you might use could be “Regency Arms,” “Excellency Apartments,” or “Golden Shores Tower.” An upscale name for your building makes it a better loan project in the eyes of loan officers.
5. Take attractive photographs of your property. Use these photos in your equity loan application. Today you can easily and quickly take attractive photos of your property with a digital camera. These photos can be printed out on your computer and sent to the lender along with your loan application.
6. “Dress up” the front of your building so it looks more attractive. This can usually be done for little money but it can give great results when you apply for your equity loan. You can do this work yourself, or you can have an outside contractor do the work. Either way, the cost will not be excessive. But the results can be enormous when you apply for your equity loan.
Use Your Increased Equity to Build Your Wealth
The six steps just listed for increasing your equity can really work—if you work them. Just take a look at this letter from a reader:
Turn Your Real Estate Holdings into Your Private Bank
Starting on Zero Cash and Getting Equity Loans to Expand
“I recently finished reading your book How to Make Big Money in Real Estate for the second time. The first time I read your book it led me to begin buying income property in my hometown. I now own seven units, all of which were bought with zero money down.
“My first property, a triplex, was bought with a 100% FHA loan. I paid $220,000 for it, and it appraised at $385,000. After one year I had the property reappraised and I gained about $165,000 in value. I made some improvements myself—new fence, tile, paint, doors, etc., which cost about $5,000. I did a cash-out refinance and received about $20,000 in cash, while lowering the interest rate. I then got a second equity loan for $60,000. This is the money I used for the down payment and closing costs on my next deal—a fourplex. Because I had made some minor improvements on the triplex myself, I was able to raise the rents on the triplex enough to cover the two new mortgages while giving me a positive cash flow of $200 per month.
“On my second deal, for the fourplex, the price was $505,000. I put 10% down. This was the money I received on the second loan on the triplex. I was able to raise the rent on one of the units in the fourplex, giving a positive cash flow of $300 per month.
“And though I bought the fourplex just 3 months ago,
I found a lender who will accept a new appraisal. So I am refinancing the fourplex at $560,000 with an Adjustable Rate Mortgage (ARM) at 5%. The existing loan is at 7.25%. The projected positive cash flow from the fourplex when the refinancing is finished is $1,000 per month.
“Since real estate has been so good to me, I’m planning on buying units until I can quit my teaching position. In less
than one year I got properties worth $950,000 with a PCF of $1,300 per month on zero cash. I look forward to greater success.” —California