Managing Your Home Equity Line

Todd Brown used credit to build his real estate business

Todd Brown, 28, stumbled onto his now full-time career of buying, rehabilitating, managing, and selling homes. From age 16 to 19, he worked in his brother’s Queens, New York, barbershop, saving money while he lived at home with his mother. He persuaded his mother to let him use $7,500 of his savings and cosign on a used Lexus, but his fiancée and a few months of paying the weighty $900 car note persuaded him to begin looking for a home.

Brown sold his precious Lexus and in October 1997 used $8,000 of his savings to put $14,000 ($9,500 down, plus $4,500 in closing costs) toward his first home — a $95,000, three-bedroom, single-family home with a finished basement in Queens Village. When he realized that his $831 monthly mortgage was less than the Lexus payment, the value of homeownership became vividly clear. “My wife, Kimmy, and I lived in the basement and rented out the upstairs for $900 so the house could pay for itself,” says Brown.

The following year, Brown opened his own barbershop in Jamaica, Queens, with $2,000 of his savings, $3,000 from Kimmy, and $4,500 in credit card charges. He hired other barbers and averaged about $65,000 a year. Meanwhile, each mortgage payment he made helped build equity in his home. By 2001, he was able to secure a $50,000 home equity line of credit (HELOC) because his home had appreciated in value to about $220,000.

A HELOC allows you to borrow against the value of your home, generally at lower rates than are available through refinancing. To qualify, there must be sufficient equity in the home to make the loan, and the borrower must have maintained a good mortgage payment history and possess a credit score above 620. Another advantage of using a HELOC is the bank doesn’t need a lot of new information for this type of transaction and it takes about 30 days to complete.

Brown used the $50,000 HELOC to begin acquiring other properties. In July 2001, he used $21,500 to purchase a $215,000, single-family home in Uniondale, New York. He had relatives in Virginia, so he looked south for better real estate bargains.

Brown obtained an $89,000, one-family home in Virginia Beach, Virginia, with $4,000 (5% down), which he rented out. He then sold the home in Uniondale for $240,000, netting a $24,000 profit. In July 2002, he took those proceeds and bought and moved into a $211,000, four-bedroom, three-and-a-half bathroom, newly constructed home in Suffolk, Virginia, complete with a two-car garage.

Real estate prices had appreciated handsomely in New York, so Brown increased his HELOC to $100,000 in order to make deals. He obtained two two-unit buildings and two three-unit rental properties in Norfolk, Virginia, between October 2003 and March 2004. The buildings cost $55,000, $85,000, $141,000, and $142,000, and he paid 10% down on each of them. Also, each building already had tenants, which provided him with a positive cash flow after each building’s mortgage was paid. Brown sold his Virginia Beach home in October 2003

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