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Eric Rich
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Using HELOC with poor W2 income to keep business rolling

Eric Rich
Posted Nov 2 2022, 14:16

I'm the owner of two single family homes in Salt Lake City. I quit my job and am essentially living off of the rental income from my home (I moved into a workshop on the property and rent out 8 bedrooms and another workshop on the property). I bring in $5590/mo. on my primary residence. After I pay all the bills associated with the house and the mortgage I am now at $2,990/mo. I have a private lender on my other house with a 10 year balloon, so I'm not cash flowing on it at all, but it will be paid off in 7 years. I bring in $5,625/mo on that property. Very good assets, but both of these houses I was just really lucky on. How do I take my $130,000 HELOC and keep moving forward. I feel stuck and have in my mind that the only option going forward is paying cash for something because of the lack of W-2 work. I co-signed originally with my Dad on my original mortgage and have a private lender for my second. It doesn't look too good for conventional loans. What other loan options are out there me to look into so that I could make the most out of the liquid available to me? I would love to use as little upfront for down payments on other properties, how can I do that with my situation? Thanks for the guidance!

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Nathan Gesner
  • Real Estate Broker
  • Cody, WY
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Nathan Gesner
  • Real Estate Broker
  • Cody, WY
ModeratorReplied Nov 3 2022, 05:03
Quote from @Eric Rich:

If you borrow against the equity, that will be another monthly payment and reduces cashflow. In other words, you are borrowing to borrow, which I don't recommend.

The market is getting tougher with high prices. Maybe you need to take a break, find some hustles to increase earnings, and save up for the next investment. In the meantime, you can learn about other financing options like owner financing, subject-to, or partnering with others.

  • Property Manager Wyoming (#12599)

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Will Fraser
  • Real Estate Broker
  • Salt Lake City, UT
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Will Fraser
  • Real Estate Broker
  • Salt Lake City, UT
Replied Nov 3 2022, 21:22

And when you look to invest next a specialized lending product like a DSCR based loan might work well for you. If you don't have any luck finding a property that has an acceptable DSCR in Salt Lake City (which I would love to help you with) then you might be best off looking at a few other lower value markets that can cover the debt better for your next investments.

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Kerry Baird
  • Rental Property Investor
  • Melbourne, FL
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Kerry Baird
  • Rental Property Investor
  • Melbourne, FL
Replied Nov 4 2022, 19:00

That second house is a problem in terms of cash flow now, but amazing in terms of quick pay off.   Perhaps a 15 year loan on that property would allow you to cash flow AND get the debt paid off quickly. 

I am in the same camp as @Nathan Gesner and will be looking at creative financing (as I often do) for my next acquisitions. HELOC might be used as an emergency fund in my own situation.

And what @Will Fraser said regarding DSCR mortgages, those have been the only way forward for me, outside of seller financing. I have too many houses to get conventional financing, and the hoops to jump through are noxious to me.

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Will Fraser
  • Real Estate Broker
  • Salt Lake City, UT
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Will Fraser
  • Real Estate Broker
  • Salt Lake City, UT
Replied Nov 4 2022, 19:26

Well said, Kerry!

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Eric Rich
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Eric Rich
Replied Nov 4 2022, 20:17

@Nathan Gesner, I am considering just working hard to make some money before getting back into the market. After seeing how well my first two are doing, bringing in over $10k of total revenue, it's hard to let go and move on for awhile, but I understand the concern. 

@Will Fraser, I recently learned about DSCR and am very interested. I am not working with any broker's right now and would love help, thank you.

@Kerry Baird, yes, I wish I could refinance to a 15 or 20 year, but it is privately financed for 3.65% as an investment property, which is an unbeatable rate, especially now. And my private lender has a 10 year balloon payment. HELOC for emergency seems way better. I'm already $70k into my original $200k to consolidate the debt I took on to renovate my rental.

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Zachariah Torres
  • Lender
  • Saratoga Springs, UT
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Zachariah Torres
  • Lender
  • Saratoga Springs, UT
Replied Dec 15 2022, 10:37
Quote from @Eric Rich:

I'm the owner of two single family homes in Salt Lake City. I quit my job and am essentially living off of the rental income from my home (I moved into a workshop on the property and rent out 8 bedrooms and another workshop on the property). I bring in $5590/mo. on my primary residence. After I pay all the bills associated with the house and the mortgage I am now at $2,990/mo. I have a private lender on my other house with a 10 year balloon, so I'm not cash flowing on it at all, but it will be paid off in 7 years. I bring in $5,625/mo on that property. Very good assets, but both of these houses I was just really lucky on. How do I take my $130,000 HELOC and keep moving forward. I feel stuck and have in my mind that the only option going forward is paying cash for something because of the lack of W-2 work. I co-signed originally with my Dad on my original mortgage and have a private lender for my second. It doesn't look too good for conventional loans. What other loan options are out there me to look into so that I could make the most out of the liquid available to me? I would love to use as little upfront for down payments on other properties, how can I do that with my situation? Thanks for the guidance!

DSCR is a great option as well as some bank statement loans depending on how long you've owned the properties. There is almost always another way to continue investing so don't be discouraged! I'm a Mortgage Broker and investor here in Utah. If you still need assistance, feel free to reach out! My phone number is in my profile.