How To Pull Equity Out Of A Paid For Rental

Question

Hi Bigger pockets peeps,

I am a new investor who bought my second rental about a month ago all in cash.  I had planned to buy the house (bought for $35k and get $825 per month in rent) and pull all the cash out with a home equity loan.  The home is valued at  about $50k.  However, it is not my primary home and did not know that home equity loans require the home to be the owner's  primary residence.  The money I put into the home is most of the liquid assets I have and need to pull the equity out.  Could you all please educate me about ways that I can pull the equity out of a home that is all paid for.   Please HELP!

Vestonia V. · Answer

Thanks so much. You've been so helpful!

Vestonia V. · Answer

@Adam Petterson. Thanks so much for the three options. Option one will not work for me because I want to re-invest now but if I am unable to pull the equity out now, I will definitely consider it later.  Option two seems more viable for what I want and will look into it. What are the requirements for portfolio loans? My credit is decent but I have high debt but a lot of income (but mostly under a year for the income sources) As per option three, I tried to get a line of credit and got the same response about the house needing to be my primary residence. Do I look at smaller banks and credit unions for the line of credit on the paid for property? Any ideas as to where else to look for line of credit?

Adam Petterson · Answer

@Vestonia Viddy You have a couple of options to explore.

The first is conventional financing. You are able to "cash out" 75% of your investment property's value with a conventional loan. However, in order to do a cash out, you need to wait at least 6 months (maybe even 12). This is a good option if you are looking for a fixed rate and 30 year money. With a mortgage that small, I would look into the next option.

The second option would be a portfolio loan. Many small banks and credit unions will offer loans that they will keep on their books. They may refer to these loans as "business loans" or "portfolio loans" Your typical portfolio loan will have a 5 year fixed rate and will be on a 15 or 20 year amortization. You may be able to get a loan up to 75% of your homes value without having to wait out the seasoning period.

The last option would be to talk with a small bank about setting up a line of credit on your investment property. If you own the home free and clear it may make sense to use your property as a line of credit. Many banks will lend 70-80% of the value if you are looking at a line of credit. This way the funds are available if need to get money or want to purchase a property with cash

Hope this helps