Real Estate Agent · Nassau County, NY (Port Washington) · Member since 2017 · 24 posts · 8 votes
Hi BP community!
My mortgage banker suggests that apply for a HELOC on my private house and use those funds for a down payment on a rental property (2-4 units) my goal is cash flow of 10% and appreciation with the rehab/fixes I put into the property. I have $200-300k equity depending on appraisal & am looking in the Long Island area for now with the intention of expanding to other markets (Durham NC).
I'm also looking to switch my old 401k and ira's into a SDIRA, which should get me $150k.
I want to get my finances in line so I can really start taking my analysis of properties seriously and make a move!
Any suggestions? Am I missing something? I feel that HML's as a newbie is not realistic since no one would want to lend to me.
I just took a 60k home equity loan at 4.75% to help with a down payment on an 8 unit commercial property. Originally, I was going to just do a HELOC and pay interest only payments. Due to my current situations and plans for when I might eventually leave my primary residence I opted for the Home equity loan at a 15 year fixed rate. I made this decision right when the last rate hike happened, I believe more are coming (HELOC is not a fixed rate). I'm happy with this decision. Also, I did not use my current mortgagee for the home equity loan. I shopped around a bit and the approval process was ridiculously easy. I literally talked to the home equity lender twice.
You can for a fact find a lander who offers fixed HELOC for primary house. We just opened HELOC with 3.99% fixed rate. 3 years draw period, 10 years Amortization. $0 closing costs, no physical appraisal.
Real Estate Agent · Nassau County, NY (Port Washington) · Member since 2017 · 24 posts · 8 votes
8y
@Harjeet Bhatti - thanks so much. One more - is it best to shop around for cheapest HELOC lender, or best to stick with your bank that holds mortgage loan? And why?
Thiensville, WI · Member since 2017 · 60 posts · 34 votes
8y
Maybe Home Equity fixed loan would be a better choice due to fixed rate? Heloc is dependent on prime and prime is on the rise due to improving economy.
Rental Property Investor · Cherry Hill, NJ · Member since 2017 · 119 posts · 60 votes
8y
I just took a 60k home equity loan at 4.75% to help with a down payment on an 8 unit commercial property. Originally, I was going to just do a HELOC and pay interest only payments. Due to my current situations and plans for when I might eventually leave my primary residence I opted for the Home equity loan at a 15 year fixed rate. I made this decision right when the last rate hike happened, I believe more are coming (HELOC is not a fixed rate). I'm happy with this decision. Also, I did not use my current mortgagee for the home equity loan. I shopped around a bit and the approval process was ridiculously easy. I literally talked to the home equity lender twice.
Rental Property Investor · Cherry Hill, NJ · Member since 2017 · 119 posts · 60 votes
8y
@Timothy Yen I may be missing something here but I wouldn't count on any possible/future rents on properties you don't even own being factored into the DTI of your primary residence on a Home equity/heloc loan.
My home equity loan was taken out with the same bank that I was taking the commercial mortgage out with. Two different bankers. The home equity loan banker did not care in the least what the money was being used for or what my rents would be. She cared about my current financial situation/credit score/income/equity in home. And the process was done in ten days. Based on the equity you have in your home, I'm sure you're in good shape.
I just took a 60k home equity loan at 4.75% to help with a down payment on an 8 unit commercial property. Originally, I was going to just do a HELOC and pay interest only payments. Due to my current situations and plans for when I might eventually leave my primary residence I opted for the Home equity loan at a 15 year fixed rate. I made this decision right when the last rate hike happened, I believe more are coming (HELOC is not a fixed rate). I'm happy with this decision. Also, I did not use my current mortgagee for the home equity loan. I shopped around a bit and the approval process was ridiculously easy. I literally talked to the home equity lender twice.
You can for a fact find a lander who offers fixed HELOC for primary house. We just opened HELOC with 3.99% fixed rate. 3 years draw period, 10 years Amortization. $0 closing costs, no physical appraisal.
Lender · Glenview IL- CDLP NMLS#230554 · Member since 2015 · 2k+ posts · 747 votes
8y
@Timothy Yen Even though you shop around with different lender its not much difference interest wise. I would say contact your current lender first and compare with other lender. Make sure you have right closing cost.
My mortgage banker suggests that apply for a HELOC on my private house and use those funds for a down payment on a rental property (2-4 units) my goal is cash flow of 10% and appreciation with the rehab/fixes I put into the property. I have $200-300k equity depending on appraisal & am looking in the Long Island area for now with the intention of expanding to other markets (Durham NC).
I'm also looking to switch my old 401k and ira's into a SDIRA, which should get me $150k.
I want to get my finances in line so I can really start taking my analysis of properties seriously and make a move!
Any suggestions? Am I missing something? I feel that HML's as a newbie is not realistic since no one would want to lend to me.
Thanks so much!
Brgds, Tim
If you can make your offers contingent upon financing, focus on putting a property under contract, then worry about liquidating your money. Congrats & good luck!
Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
8y
I used my HELOC for investing. But one time when I had a $120K line and needed just $20K of it to put a down on a foreclosure, the bank said "no" because it had to be in seasoned funds.
Our DTI was fine, had good W2 income. Fortunately my wife was handling her mom's banking, had a joint account with over $50K and some 20 years history, we showed the bank the bankbook and they OK'd it. I'm not complaining as it was a portfolio loan, and other than the seasoning issue, they were fine with everything else.
I went to closing and paid with funds from the HELOC anyway.
Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
8y
@Timothy Yen It is always better to get your capital working whenever you can as opposed to that equity just sitting in your house. When you get the HELOC combined with the 150k from SDIRA, you have about 400k, so you might start thinking are you able to do more with that capital even if it meant you wait for a little to learn about, say, larger multifamily. Just a different perspective :)
Denver, CO · Member since 2017 · 142 posts · 104 votes
8y
Like Lana Lee said, you can get a fixed rate HELOC too. I'd prefer to get a HELOC, btw Lana Lee that is an awesome deal on the rate! What bank did you use?
Like Lana Lee said, you can get a fixed rate HELOC too. I'd prefer to get a HELOC, btw Lana Lee that is an awesome deal on the rate! What bank did you use?
South Portland, ME · Member since 2017 · 6 posts · 2 votes
8y
We took out a $160k HELOC at 95% LTV on our primary residence (a 3-family), combined that with some savings and used it to purchase a 6-unit investment property. The bank never asked what we were doing with the money. Our rate is 4.9% fixed with a 5 year draw and 10 year repayment. I'm glad we ended up going with a HELOC instead of a home equity loan because of the flexibility. From the time we secured the HELOC to the time we actually closed on a property was about 6 months. We had one place under contract that fell through. If it had been a home equity loan, we would have been making payments for 6-months with no additional rental income coming in. Instead with the HELOC, the funds just sat there accruing no interest until we were ready to close on the place we ended up buying. Didn't need to make our first payment until we were already collecting rent on the new place. Additionally, we will most likely tap this line of credit again in a couple years once we've paid it down some. I now understand what makes a HELOC such an invaluable tool to have in your back pocket.
We took out a $160k HELOC at 95% LTV on our primary residence (a 3-family), combined that with some savings and used it to purchase a 6-unit investment property. The bank never asked what we were doing with the money. Our rate is 4.9% fixed with a 5 year draw and 10 year repayment. I'm glad we ended up going with a HELOC instead of a home equity loan because of the flexibility. From the time we secured the HELOC to the time we actually closed on a property was about 6 months. We had one place under contract that fell through. If it had been a home equity loan, we would have been making payments for 6-months with no additional rental income coming in. Instead with the HELOC, the funds just sat there accruing no interest until we were ready to close on the place we ended up buying. Didn't need to make our first payment until we were already collecting rent on the new place. Additionally, we will most likely tap this line of credit again in a couple years once we've paid it down some. I now understand what makes a HELOC such an invaluable tool to have in your back pocket.
Most banks will ask you how do you plan to use that money. We got rejected one time for telling we want to use it as a down payment for investment property. That was the lesson. Just say for primary residence improvements or something like that .
Thiensville, WI · Member since 2017 · 60 posts · 34 votes
8y
For those who used HELOC for down payment on rental, how do you plan to pay it off when loan comes due? Line of credits that I had seen are due in 10 years (balloons). Just curious
Overland Park, KS · Member since 2013 · 55 posts · 12 votes
8y
@Lana Lee, valid. Does the HELOC provider give 'check-writing' privileges, and you just use this 'check' to fund the down-payment on new property? Or would you have to 'write a check to yourself' to get the HELOC funds in your personal checking and let it season a couple months before using as a new downpayment?
@Lana Lee, valid. Does the HELOC provider give 'check-writing' privileges, and you just use this 'check' to fund the down-payment on new property? Or would you have to 'write a check to yourself' to get the HELOC funds in your personal checking and let it season a couple months before using as a new downpayment?
I haven't used my HELOC yet, looking for the right property. But when it comes my way I will simply transfer the HILOC funds to my checking account which I also opened with the same credit union. And I can do that at home with the click of a button. Now, my lander doesn't require any seasoning, which will save me money on interest.
So if we use a HELOC as the down payment, we will still need a conventional loan on top of that. So we will be paying variable 5% + traditional fixed 5%. Is it really that smart to use a HELOC? I am about to close on a HELOC but I'm having second thoughts.
If I use a HELOC for down payment, shouldn't I factor the repayment of that into cash flow? Seems it would be difficult to maintain a positive cash flow after paying mortgage, taxes, maintenance, repairs, property management, and HELOC repayment with the rental income. Someone tell me what I am missing.
Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
8y
@Shaun Bandy Yes, I think you should factor it in.
I have use HELOC a few times to acquire properties, when I was doing investing in foreclosure properties. The trick here is to get the place so cheap that even factoring in the HELOC, you come out ahead in your cash flow.
For instance, I bought a foreclosure for $200,000, use my HELOC for the down payment of 10%, in round numbers, $20,000. At 7% at the time, the monthly payment on the HELOC was roughly $115/month. I lived in a triplex I owned at the time, when I started an IT consulting business, used 2 units which I could have rented out for $1,700, i.e. $1,000 plus $700. So I moved into the foreclosure house, which was so much larger, that I don't have to use a separate apartment to run my business anymore. The foreclosure house is a duplex, the first mortgage which includes tax and insurance initially ran me $1,800, but I collect $1,000 rent, costing me only $800/month net. Add in the HELOC, and it's only costing me $915/month. But the triplex I moved from, I now net $1700 more, renting out 2 units that I was using. So even factoring the HELOC of $115/month, I'm way ahead.
While banks consider borrowing for down payment bad, but depending on your financial situation, that's the net cash flow before and after, you can come ahead, in my case way ahead, using HELOC as a down payment like I did. In fact, the small monthly HELOC payment of $115 is only a minor factor in the whole situation.