Purchasing Property with HELOC?

Question

Me and my fiance have purchased our first home, a single family home near downtown Indianapolis. We put 20% down on this home (~67k) and have recently been introduced to a very attractive investment property in the area. A duplex with approximately the same price tag as our current home.

We do not have much in liquid assets right now for a down payment on an investment property, which would probably require about 25% down. Can anyone give us some tips on how to accomplish this acquisition? I know there is a lot of hesitation for people concerning 401k loans or HELOCs. We are at approximately 80% LTV on our home so our HELOC would not be able to get us all the way to the 25%.

I know this probably just sounds like "Hey how do I buy an expensive house when I have no money?", but any advice would be greatly appreciated.

Thanks!

Brandon Borah · Answer

Account Closed have some good opportunities available for higher LTV HELOC options to cover your entire down payment.

Brandon Borah · Answer

@Neil Henderson The HELOC is open for 10 years; however, I do plan to pay it off. I like flexibility to pay towards the HELOC, but be able to utilize the cash if another investment opportunity comes my way.

Yes, I did use some of the HELOC to pay cash for my current propert and you are right in regards to the equity. I got a great deal on my first property (blessed moment) and the house appreciated another $15K over 3 years, which allowed for this entire process to take place.

Mayank S. · Answer

I am also in the same boat. Just got my HELOC approved on my primary home and getting ready to close a turnkey property in Dayton in couple of weeks. Have looped in couple of lenders also who are ready for 70-75% LTV delayed financing on this property to pay off HELOC. I am paying some out of pocket (10%) and rest through HELOC funds. Property FMV is roughly around 12-15% above purchase price based on recent COMPS and estimation from other local BP investors/realtors I reached out to as a part of my due diligence. Property in good B class/school district neighborhood.Will see how this delayed financing works for me after closing. Planning to rinse and repeat HELOC/ cashout refi option until reached the limit .

Any thing to be cognizant about in the process?

Louise A. · Answer

HELOCs are a great tool to use to buy rental property.  How long have you been in your home?  I think most banks have seasoning periods before writing high LTV HELOCs.  I have a contact that I can connect you with if you need a lender.  I think they're going as high as 100% LTV, but again, you have to meet their seasoning requirements.  PM me if I can help...  I'm buying multi-family too.  Good duplexes in good areas!

Michael Barbari · Answer

Account Closed I can do helocs in Indy up to 90% ltv if you are still looking. PM me if you are. Thanks.

Darrin Carey · Answer

Account Closed is doing, they may not be your best option. But, they are worth considering.

Rodney Kuhl · Answer

Account Closed I think the HELOC option is a great one. We don't have enough equity in our house yet to make it an option for us, but once we do we plan to utilize that to help us acquire more properties.What neighborhood are you in? Duplexes can be tricky in some neighborhoods, but judging from the $67,000 down payment I'm guessing you're in a pretty nice area. What do the numbers of the duplex look like as an investment? If the purchase is near the price of your duplex, rent will have to be pretty high to make it a profitable investment. Does the potential property need any rehab? Is it currently rented? If you need help analyzing the investment returns, I'm happy to do so, just shoot me a PM.Other options would be potentially seller financing, or else private funds from another source.

Account Closed · Answer

Thanks @Rodney Kuhl and @Louise Alexander, I really appreciate your responses and thanks for offering your help!

Neil Henderson · Answer

@Brandon Borah How does the exit/payoff from the HELOC work? Are you using the HELOC to pay cash for the property then doing a cash out refi 6-12+ months down the road to pay off the HELOC? I assume you'd need to force some appreciation in there to build up enough equity to have the refi cover the total balance on the HELOC.

Mike H. · Answer

Just to clarify. Are you saying the down payment on your home was 67k? Or are you saying the purchase price was 67k on your home? From where it is in your parens, its a little tough to tell.

In terms of taking out a 401k loan or getting a heloc, my suggestion would be to use both if you need to. You'll make far more money on a good investment property than you will on the interest you'd be paying for either one.

But the key thing there is that it be a good investment.

What is the purchase price of the duplex? Estimated rehab? Estimated ARV?

Rents? Taxes? Insurance?

those are some of the things I'd be more interested in hearing and will give a better idea as to whether it makes sense or not to do a 401k loan or a heloc.

Purchasing Property with HELOC?

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