How to get start with equity monies

Question

Hi guys,

I am looking to get into flipping houses but I need some help understanding if using the equity in my house is feasible.

I have about $200K in equity in my house and really don't have extra cash flow to add to my monthly budget. Is there a way to use this equity without refinancing and raising my monthly mortgage payment?

I am skilled in the trades so I do not need a bunch of money to pay subcontractors during the flip, since I will be doing much of the work myself. But how do I free up that equity to get the deal started?

Thanks

Jennifer Petrillo · Answer

Call your mortgage company, tell them you want to access the equity in your home, ask them to come up with both HELOC and cash out refinance options for you to consider, hopefully they will have a good loan officer who can come up with several different deals for you, explain the loan obligations, and you can pick which works best for you. We just did a cash out refi on our own home in order to buy a vacation rental investment property. Our mortgage company offered us two HELOC options, both at around 5%, and the cash out refi for half a percent more than we are paying now. The refi was a better option for us overall. When we closed, we had the funds wired directly to the escrow account of the attorney who is handling the investment purchase for us, it didn't even pass through our hands. You can do this with any bank, of course, but I feel that going to your current lender makes them want to come up with a nice deal to keep you working with them. I also spoke with a small local bank and also a private lender and both offered me interest rates > 6%.

Aaron Byler · Answer

Thanks for the input guys. I am familiar with HELOCs but I'm not sure of the details.

Is it a revolving line of credit that you can draw from and pay down as needed, much like a credit card?

Do you have to pay any payment if you have a zero balance on the HELOC?

Rich Kniss · Answer

@Aaron Byler, why don't you try a HELOC? Some have interest only for the first 10 years, so the payments are much lower. Use what you need and pay it back when you sell.