Using my heloc for down payment.

2 Replies

Hello, my name is Tony and I’m new here and trying to buy my first duplex. I have a heloc on my primary residence that I would like to use for a down payment on my first rental. In Salem Oregon where I live prices are in the 220-320,000 range. Assuming I put 25% down, it will eat up most of my heloc, 63,000. What is the best way to get that money back so I can reuse it for the purchase of my second? I can retire in 10 years and would like to have 8-10 duplexes by then. Thanks in advance for any information.

Hey, @Anthony Norman I know a few people that recycle their HELOC to keep building their portfolio. A couple things to think about:

(1) Will the rental you are buying bring in enough monthly to cover the HELOC payment plus the mortgage on the property? If not, can you cover the HELOC?

(2) If you want to recycle the HELOC then you need to be able to add value to the house for the refinance. If you have 25% of your money in the property, then you have to increase the value by at least that much to get it back out. If you can refinance 70% of the appraised value, then a $300,000 home has to be bought at $210,000 - repair costs, closing fees, refinance fees, and holding expenses; otherwise, you won't get your HELOC downpayment back. (different companies have different refinance rates, there are some that will let you take 75% or 80% of the appraised value).

Ultimately, thats the key. There really is only one way to get your money back - you have to buy right.

If you're buying a 300k house, then you need to be all in at 225k. So your purchase plus your rehab have to come to 225k or less. 

Lets say your purchase is 200k and rehab is 25k. You'd put down your 25% of 200k (50k) and pay your 25k rehab out of pocket. Then you'd wait your 6 months and do cash out refi up to 225k which will let you pull all your money back out again.

Here's the trick though. You can only do conventional cash out refi's up to 6 properties including your primary (i think freddie mac allows 6 for cash out refi's, fannie 4?).   So if you want to get to 8 or 9 of these, then you'll have to switch to commercial loans with local banks.

They can do portfolio loans on these deals and they will do the cash out refi's with no seasoning even. But the loan terms are not going to be as good as a conventional mortgage. i.e. amortized over 20 or 25, rates about .5% or so higher. And they either balloon or reset the rate after 5 years typically.

So you have some risk to rate increases with those.

But ultimately, it still comes back to buying right. And the previous poster made a great point. If you do a cash out refi and have a 225k loan on the property, will it still cash flow at that loan amount? If no, then maybe thats not a good idea.

Typically, it seems much trickier to get 300k houses to cash flow positive. You typically need to be under 175k in price range to make the numbers work for you.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here