Should I use the equity in my house to invest in other properties

5 Replies

Hello all,

Cesar here. I'm new to biggerpockets and looking for some expert advice. Your insights and experience is welcomed!

With that, here is a little about my situation. I recently purchased my first home which was a foreclosure. 

I purchased the foreclosure for $75,000 and put $30,000 into improvements for a total loan amount of $105,000 via an FHA 203k loan. According to the appraiser, the ARV will be between $125,000 and $130,000. My loan officer suggest I refinance after 6 months to get closer to 80% LTV and so that I can ditched the mortgage insurance.

My contractor has offered me an opportunity to partner with him on flipping houses however I don't necessarily have the capital. Since I will have $15,000-$20,000 equity in my house, should I use that to invest in other properties? Good or bad? Crazy, wacky? 

Thank you in advance.

Cesar

Hi Cesar,

That is an option that I think people will fall on both sides on. I personally think it depends on a couple of things.

One, how are you making money to pay for your mortgage? Is it reliable, what's your backup plan?

Two, what other "assets" can you bring to the partnership?  What's your credit like? Can you find alternate financing? Can you bring deals to the table? Can you work for the contractor? Can you find a cash partner, and do something else for the deal?

In the end, I'm hesitant to use your home equity for investing. It greatly increases the stakes and the stress.

I had this question once, and in my personal experience, learned that my credit score was way more valuable than I thought.

Gerrit,

Thank you for your prompt response. This brings a lot of things into light that I didn't consider before, however, I don't see any other option for gathering funds to invest other than using the equity, selling the house, or sitting and waiting until my savings grows large enough. But as you mentioned, I can also look for a cash partner but then I wouldn't having anything to offer other than being a warm body. I'd like to contribute a little more than that. :)

Thanks again for your insight and experience!

-Cesar

@Cesar Contreras

You're welcome, I'm glad I can help.

In terms of getting funds, there is hard money, credit cards, and other ways. Not saying all are meritorious, but there are others to look at.

Also, don't underestimate bringing deals together. That's more than a warm body. Sure, you'll have a smaller cut by introducing other parties, but on the other hand, it's great practice from a doing deals standpoint and a networking standpoint. Plus, if you keep investing, you'll need to do stuff like that at some point.

In the end, you have to do what you are comfortable with and what you have available, but know that there are many ways to get deals done.

@Cesar Contreras I would first start by contacting your local banks to see what options you will have. Every bank offers different terms and options. From the #s you provided you are already right at 80% LTV with 105k borrowed and an ARV around 130k.

Most banks I have found will only offer a HELOC based on 70-90% LTV. It also depends on your debt to income when qualifying for a HELOC.

So I would begin by contacting local banks to see what they offer and to see if you can qualify.

Originally posted by @Ryan Billingsley :

@Cesar Contreras I would first start by contacting your local banks to see what options you will have. Every bank offers different terms and options. From the #s you provided you are already right at 80% LTV with 105k borrowed and an ARV around 130k.

Most banks I have found will only offer a HELOC based on 70-90% LTV. It also depends on your debt to income when qualifying for a HELOC.

So I would begin by contacting local banks to see what they offer and to see if you can qualify.

 Thank you, Ryan. -Cesar