New Investor with a HELOC question
Hi everyone! My name is Ken and I've been listening to the BP podcasts for close to 8 months now. Just started coming on the forums and wanted to introduce myself. I currently own the condo I'm in right now, and I'm thinking of looking for something to invest in. As far as money goes, once I find a deal and crunch the numbers, what would be the best way of financing said deal? I can probably find some people to go in on the deal with me, or should I take out a HELOC? What are the pros and cons of each? TIA for any help you could offer. I look forward to talking to all of you in the future.
@Kenneth Hadinoto 1) get a HELOC in place on your condo for the maximum amount in case you want to use it....the combined loan to value is likely to be 85% or 90% 2) with the HELOC in place you can then decide on either using it or using the partner approach 3) get fully pre approved before starting to actively look for the next property
Hi Kenneth -
Welcome to the forum. Well, the biggest con of a HELOC compared to if you were to split funds needed from another investor, would be that it's a second mortgage that you have to pay back. On the other hand, going into a deal with another person will hurt your cash flow by the need to split it. If you do go in on a deal with someone, I would just advise to be 100% positive it's a good partnership.
Personally, (and if you have the flexibility), I like the idea of converting your condo into a rental and purchasing another 1-4 unit owner-occupied property with a 3.5% down FHA loan, or a SFR property with a 5% down Conventional loan. That'll be the option to purchase another investment with the least amount of money.
If you purchase a NOO, you'll need at least 15% down on a SFR (with PMI), or 25% down on a multi-unit.
If you can access enough equity, the numbers work, and you would rather not move, taking out a HELOC isn't a bad move. Just remember it's a variable rate, and HELOC's typically aren't the best to borrower large sums out of or to hold on to long-term.
Hope this helps!
Quote from @Dave Skow:Thanks for the reply. Would that be 85-90% of the equity I have built up in my condo?
@Kenneth Hadinoto 1) get a HELOC in place on your condo for the maximum amount in case you want to use it....the combined loan to value is likely to be 85% or 90% 2) with the HELOC in place you can then decide on either using it or using the partner approach 3) get fully pre approved before starting to actively look for the next property
Quote from @Trevor Alexander:Thank you very much. I definitely have some things to think about. My fiancée and I are not looking to house hack right now. Possibly in the future (If I can convince her). 😂
Hi Kenneth -
Welcome to the forum. Well, the biggest con of a HELOC compared to if you were to split funds needed from another investor, would be that it's a second mortgage that you have to pay back. On the other hand, going into a deal with another person will hurt your cash flow by the need to split it. If you do go in on a deal with someone, I would just advise to be 100% positive it's a good partnership.
Personally, (and if you have the flexibility), I like the idea of converting your condo into a rental and purchasing another 1-4 unit owner-occupied property with a 3.5% down FHA loan, or a SFR property with a 5% down Conventional loan. That'll be the option to purchase another investment with the least amount of money.
If you purchase a NOO, you'll need at least 15% down on a SFR (with PMI), or 25% down on a multi-unit.
If you can access enough equity, the numbers work, and you would rather not move, taking out a HELOC isn't a bad move. Just remember it's a variable rate, and HELOC's typically aren't the best to borrower large sums out of or to hold on to long-term.
Hope this helps!
@Kenneth Hadinoto.....90% cltv combined loan to value ... value x 90% = X ........X - current 1st mtg balance = possible amount of the HELOC
Quote from @Dave Skow:Thank you very much for the explanation.
@Kenneth Hadinoto.....90% cltv combined loan to value ... value x 90% = X ........X - current 1st mtg balance = possible amount of the HELOC
Quote from @Kenneth Hadinoto:
Quote from @Trevor Alexander:Thank you very much. I definitely have some things to think about. My fiancée and I are not looking to house hack right now. Possibly in the future (If I can convince her). 😂
Hi Kenneth -
Welcome to the forum. Well, the biggest con of a HELOC compared to if you were to split funds needed from another investor, would be that it's a second mortgage that you have to pay back. On the other hand, going into a deal with another person will hurt your cash flow by the need to split it. If you do go in on a deal with someone, I would just advise to be 100% positive it's a good partnership.
Personally, (and if you have the flexibility), I like the idea of converting your condo into a rental and purchasing another 1-4 unit owner-occupied property with a 3.5% down FHA loan, or a SFR property with a 5% down Conventional loan. That'll be the option to purchase another investment with the least amount of money.
If you purchase a NOO, you'll need at least 15% down on a SFR (with PMI), or 25% down on a multi-unit.
If you can access enough equity, the numbers work, and you would rather not move, taking out a HELOC isn't a bad move. Just remember it's a variable rate, and HELOC's typically aren't the best to borrower large sums out of or to hold on to long-term.
Hope this helps!
Oh, I totally get that ha! But you wouldn't have to house hack if you just purchased another SFR to live in for 3.5-5% down rather than putting up at least 15% at a rate of probably 1.5% higher -- rates on NOO loans are higher than OO loans. Just my opinion of course.
A HELOC really isn't a bad option. Just include your hypothetical P/I payments in your cash flow calc. on the new rental purchase and see how the numbers look.
I see how hacking can be off putting for some. However, I'm having a hard time seeing how it's much different from Condo living. Especially if you're able to live virtually rent/mortgage free in a 2,3,or 4 plex. If you currently own the condo out right with no mortgage and you put a tenant in it and house hack a SMF, the only thing I would be worried about is the capital gains on the condo. But alas, this is just what I've picked up from the podcasts and BP books. I'm currently prepping my primary to do the same thing!
Best of Luck!
Quote from @Tripp Warren:Well, unfortunately, I don’t own my condo outright, (only been in it for 6 years) Secondly, it’s more of a space issue. Most of the MFHs don’t have a garage in my area, but my condo has a 2 car garage. (with a lot of stuff in it) Trust me, I would love to do a house hack, but my fiancé and I are in our 40’s, and she’s not keen on the idea of moving into a MF. When she moves, she wants it to be into the home we retire with. Thank you for your response.
I see how hacking can be off putting for some. However, I'm having a hard time seeing how it's much different from Condo living. Especially if you're able to live virtually rent/mortgage free in a 2,3,or 4 plex. If you currently own the condo out right with no mortgage and you put a tenant in it and house hack a SMF, the only thing I would be worried about is the capital gains on the condo. But alas, this is just what I've picked up from the podcasts and BP books. I'm currently prepping my primary to do the same thing!
Best of Luck!