What my best option ?

Question

Hi, I’m in the Tampa Bay Area and I’m looking to purchase another property. I was looking to do a HELOC on my primary residence to fund my purchase.  I need some advice is this a good strategy or should I rent my house out apply for a conventional loan and use the brrr method to scale my portfolio. Thanks

Corby Goade · Answer

I love the HELOC option, done it many times myself. My goal is to buy properties that I will be able to refi and pay off the HELOC in a year or less, so I want to feel confident that I'll have at least 25% equity within 12 months.

Good luck!

Johnny Tran · Answer

Hey Marvin, I am also located in St.Petersburg Fl.Great to see other local investors near by.

Here are some information that was helpful to me when I initially used a HELOC on my primary that I bought cash to fund my other investments.

HELOC are a great tool if used properly. As others have mention HELOC are used for short term investments ( Perhaps under 1year). A HELOC resembles a second mortgage (if you have a current mortgage on your property) but functions like a credit card. HELOC funds can be drawn when you need the money instead of taken in a lump sum. Most HELOC are variable rates until you make the draw and use the funds, some lender allow you to lock in the rate once the funds are drawn.

Have you shopped different lenders?

Depending on the lender the LTV can range from 75-90%. Using your information, stating your home was appraised for $360k if you qualify you can pull a HELOC somewhere between $270k-324k assuming you own your house free and clear. If not just deduct what you owe on the property from the total LVT amount to calculate total HELOC credit.

From there if you do your research and numbers align, use that HELOC to purchase the investment property, rehab the property if needed, rent it out, refi the new investment to a conventional loan (there may be 6month season period before you can refi or a delayed financing) and repay your HELOC back with that BRRRR check.

Hope that was helpful!

Marvin Scott Butler · Answer

@Corby Goade Yes that’s  what I’m looking do never did HELOC so I I’ve been trying to educate myself about it

Dillon Cook · Answer

That's a near copy of my situation as well.  I'm adverse to a cash out refi because I locked in a rate in the upper 2s and it hurts to think about 6-7s.

Are you trying to use the HELOC to fund the entire purchase or reno.. or both?

Josh Green · Answer

@Marvin Scott Butler HELOC is a great option to buy a property quickly but the point is to not hold the HELOC for extended periods. The intent is best served to quickly value add or flip the house or BRRRR it to pay off the HELOC within a short period of time.  In a scenario like that, it would be better to use the HELOC than a conventional mortgage or hard money loan assuming you refi and can pay off the HELOC.

Marvin Scott Butler · Answer

@Josh Green Thanks for the input that’s what I had in mind was using the HELOC for brrr method.

Marvin Scott Butler · Answer

@Johnny Tran Thanks Johnny, that answered a lot questions that I was on the fence about. My next step is to locate lenders.  Thanks again for the information you provided!!

Marvin Scott Butler · Answer

@Dillon Cook  I want  want both that’s  I was looking at the HELOC instead of refi because I’m at 3.7 now but I took some time to build my credit score up and lower my DTI to get the best rates now that I have that I’m ready to take my next step just want make sure I’m not missing anything

Marvin Scott Butler · Answer

@Dillon Cook Thanks for the your advice I paid 230,000 for the house and been appraised at 360,000 also my property manager said I can get 2200 a month in rent. That’s why I looking at house hacking and the brrr method for my next deal

What my best option ?

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