I am getting ready to launch into RE investing. I am looking at 2 opportunities to capitalizing my portfolio. Would love your feedback and advice on these two options.
option 1: Sell our house.
We've got our house listed and based on feedback. Confident we can sell and get between $40-$50k in net proceeds. We'd then get into an undervalued home and shave anywhere between $200-$700 per month in mortgage.
Downsides: moving, down payment for other house (5% down), most likely next house will need some cosmetic updating down the road to max value
upside: generates capital with no interest, and reduces monthly expenses.
option 2: We are strong borrowers, have w2 income, little debt besides mortgage and 1 student loan, and have established Self employee income. After doing some due diligence have found several local credit unions that will do 100% LTV HELOC. This would generate 90-100k in capital, and we would retain our 20k in current capital for investing.
downside: have to pay interest, doesn't lower payment.
upside: retain strong asset, leverage equity, access to more capital
1. play the long game via BRRRR's
2. be a value add partner for other investors by providing capital to fund deals and flips.
all of that being said, would love wisdom of some finance ninjas and the BP community!
In general If your goal is to build a portfolio then selling your current home puts you one house behind from where you were, so assuming numbers work I would not sell.
Re the 100% ltv heloc; I would be very skeptical about that. I've done a significant amount of heloc research (closed on one 3 weeks ago) and I have never seen 100% ltv. Can you share any documentation showing that and a rate sheet on such a loan?
Thanks for the feedback Christian. The 100% LTV HELOC is available at Seattle Metro Credit union (SMCU) as well as Washington State Employee Credit Union (WSECU). I also have found several 90% and one 95% LTV options.
Sound Credit Union also offers 100% LTV, but only up to $50k. Usually 100% LTV lenders have a max, so you should confirm that with the other two banks. What's nice about Sound is that there are no closing costs/fees (they do an automated appraisal on your property), and they offer a 3% 1-yr introductory rate. What I'd do is just re-finance the HELOC every year to get a new introductory rate :-)
If I were you and you could afford it, I'd do option 3: Put a HELOC on your primary, move into a new one, and then rent out the old residence. Then do this every year or two and gain wealth :-)
Be careful about what you invest with the HELOC. It's more meant to be used for short-term stuff (like lending and JV), otherwise for long-term you probably want something fixed with lower payments so that it doesn't hurt your DTI too much.