Long Beach, CA · Member since 2016 · 1 post · 0 votes
Hello All,
I am new to this site although I've been listening to the podcast for a little now. I currently own a property which is completely paid off, no mortgage. My parents currently live there so I am making no $$$. I actually still help them out every month with things they need.
I am considering a Home Equity Loan, HELOC, or some other product that I may not know about to purchase another rental property. You could say that I've been fairly adverse to just about ANY risk in the past, however, I'm stepping outside of that bubble and believe I'm ready to invest.
Pros - once set up you can basically make cash offers and close quickly on any property, up to your HELOC limit. Cash deals and quick closes can save quite a bit on the purchase price for some buyers.
Cons-It may not be the best way to finance a rental property permanently given a probably higher interest rate and higher payment.
HELOCs can work with various strategies so it really depends on the road you are planning on traveling. I am closing on a HELOC in the near future for my primary residence. This will allow me to essentially make cash offers on properties. I would generally only use the HELOC over a conventional mortgage if I could get a significant savings on the purchase price.
My current goal is to secure a flip or BRRR property where I can buy and rehab it with the HELOC then sell or rent/refinance and get my money back and find another. I have a full time job and am only looking for one property at a time at this point.
If you have a lot of equity do it. Your credit union will lend up to 90% Ltv with 4% int and no fees except for an appraisal. It's a high quality leverage.
Honestly we looked at all our options and decided in Jan of this year to just do a cash out refinance. It locked in a lower rate for 30 years, allowed us to pull our money out. The bad thing is the loan restarts but for us it was worth it.
Don't forget that Home Equity Lines are typically shorter terms so more expensive.
Sorry@Ralph R., the HELOC will be on my primary residence. I didn't make that clear.
@Elizabeth Colegrove That is another option depending on your strategy. Are you using the funds for a down payment(s) for buy and hold rentals? In that case your course is much better.
I only planned on using the HELOC for short term financing, like a hard money lender but I borrow against my own equity and pay it back in a short time through selling a flip or refinancing a long term rental.