Hi all. Trying to put my financing ready. I have a primary home that has a lot of equity. Planning to use HELOC to buy cash for a property. What are some of the exit strategies to transition to long term loan? Appreciate all your feedback.
If you do cash out refinance it would allow to only get to 75% LTV around the high 7s with some points, they would still require to be 1st position. As for HELOC allows it be in 2nd position and it allows you to get up to 90% ltv for primary. However, rate would be prime + index + an additional +2% for the shock factor just to qualify, but you can draw the funds whenever you want vs cash out where you have to draw all the money after closing.
Many borrowers would keep opening lines of credit, assuming you have the equity + income to qualify, as you keep rinsing and repeating the heloc process.@Albert Bui@Carlos Valencia
If you do cash out refinance it would allow to only get to 75% LTV around the high 7s with some points, they would still require to be 1st position. As for HELOC allows it be in 2nd position and it allows you to get up to 90% ltv for primary. However, rate would be prime + index + an additional +2% for the shock factor just to qualify, but you can draw the funds whenever you want vs cash out where you have to draw all the money after closing.
Many borrowers would keep opening lines of credit, assuming you have the equity + income to qualify, as you keep rinsing and repeating the heloc process.@Albert Bui@Carlos Valencia
"rinsing and repeating the heloc process" - Don't forget paying all the fees and closing costs along the way.
@Rhyna Orillaneda Whatever you do don't get stuck holding RE with HELOC funds. Make your cash-offers, remodel/value add (ideally), and then cash-out into a fixed rate.
@Matthew Kwan - thanks for your reply. I want the HELOC option because the funds are readily available whether I want to use it or not. I am not understanding the EXIT strategy though. Say I bought the house cash thru HELOC, have it rehabbed. Then refinance it to DCSR loan. Would I get the cash back to pay off the HELOC? I wanted to be sure I'm understanding the exit strategy before I decide on using HELOC for my first investment property.
@Rhyna Orillaneda - There are really only two exit strategies to get money out of the house to pay off the HELOC. 1) Cash out refinance. If you are holding long-term you can do a cash-out refinance, but unless you really buy it for a deep discount or do huge value-add with little money, you probably won't get all of your money out of the project. If the only money used was from the HELOC, you probably don't pay it off. If you used cash + the HELOC you might have some cash equity that stays in the property, but you get enough out to pay off the HELOC. 2) Sell the property. If you buy a property using a HELOC, fix it up, then sell it, you should always have enough to pay off the HELOC unless you are losing money on the flip. I use this as my backup in case my BRRRR doesn't go quite as planned I can always just dump the property and start again.
Taking out a HELOC against your primary residence only makes sense if your investment will yield enough profit to cover the carrying costs of the HELOC, Closing Costs and incidentals. So you have to do the math ahead of time... If you can buy an investment property, minus off all the costs, and then still profit at least 20% on top of you investment expenses/cc and incidentals (which should be counted at 10%+), then it makes logical business sense. Sometimes it makes sense to wait, especially if you will be paying off cheap money with expensive money...