HELOC on an investment property

13 Replies

Hi there! I'm new to REI as of early 2018, turning my previous home into a rental and acquiring a long-distance turn key rental shortly thereafter. I'd really like to keep my momentum moving, and am trying to determine the best way to utilize the current equity of my previous home turned rental in Austin, TX. It is currently appraised around $275k, and I have $161k left on the mortgage. The rate is fixed at 3.75%, so I'd rather not do a cash-out-refi and lose the cashflow I currently make off the property. I'd also like to know if a HELOC can be attached to an investment property, as I've heard different answers to that question. I'm going to be moving my focus to Fix and Flip or BRRRR deals and access to those funds would be nice. I'm sure others have had similar situations, so I'm looking for advice. Thanks.

William,

I have a HELOC on one of my rental properties and I’ve been shopping around for a better LTV for my other properties. You can absolutely get one, but they will typically be for a lower amount than on a primary residence, and sometimes a slightly higher interest rate. I’ve seen (locally to Virginia Beach) about 75%. For example, if you got a HELOC at 75% LTV they calculate it by multiplying your 275k by 75% to get about 206k, then they subtract your remaining principle of 161, which would get you a HELOC value of about 45k.

Good luck!!

Best,
Rhett

I think its smart to think about a HELOC while the market's high. It's a nice asset protection move and a way to become a small lender as well.

If you're looking to grow your cash flow, then look at the big picture. The cash flow comes because there's a margin between your income and expenses.

If you put the HELOC to work via loans/notes.gap funding etc., then you can make more income even though your expenses go up.

If you focus on making investment decisions so your income is much greater than your expenses... you still create cash flow... and you'll do fine.

So @William Brock , you've got some solid ideas, but I'd encourage you to widen what you think is possible.  Your equity - if deployed soberly -  can do more  than you imagine.

Not sure if this still applies, but I remember HELOCs being frozen or closed with little notice during the last recession, so keep that in mind as a HELOC on an investment property is likely a candidate for that scenario during another recession, depending on how far the market falls. I did look into a HELOC on an investment property, but the rates/fees were too high to justify it, although it would be less expensive than using a hard money lender.

1. Yes, you can get a "HELOC" on investment properties (there is no such thing as HELOC on rentals, and if you ask a residential loan officer most likely will tell you no, or think you are looking for LOC on your primary residence - you need to talk with a commercial loan officer and make it clear you are looking for product similar to a residential HELOC, but secured by investment properties - it's often referred as portfolio line of credit or asset based LOC). We got one from Amplify CU.

2. Just keep in mind it might follow different requirements and restrictions than a HELOC (like shorter life time, might require an LLC, revolving period and minimum/maximum balances per period, etc.). Plus what @Lynn M. said.

2. Amplify was even offering a 50K LOC just for being a home owner. In your case, that would work better and more cost efficient than getting a 45K ABLOC.

Originally posted by @Rhett Z Begley :

William,

I have a HELOC on one of my rental properties and I've been shopping around for a better LTV for my other properties. You can absolutely get one, but they will typically be for a lower amount than on a primary residence, and sometimes a slightly higher interest rate. I've seen (locally to Virginia Beach) about 75%. For example, if you got a HELOC at 75% LTV they calculate it by multiplying your 275k by 75% to get about 206k, then they subtract your remaining principle of 161, which would get you a HELOC value of about 45k.

Good luck!!

Best,
Rhett

Hi Rhett, i am close to virginia beach area as well and am new to the REI. We are looking at buying second house to use it as a rental property. However, i do not have any cash on hand to put down. Would you recommend using equity that we have from our first house (about 60-70K) and/or 401K? Would that even be possible to use?

@Al Williamson Hi Al and thanks for the great response. You make a good point that I should look at the totality of my income vs expense. I guess I do have a narrow field of view at the moment with regards to the two properties I have, but I am indeed trying to gather more knowledge to widen it. I'm going to continue analyzing ROE on teh property vs the ROI I could get by investing that money elsewhere. There seems to be a millions avenues in REI and I come across a new one every day!

Much appreciated!

Thanks.

Originally posted by @Tatiana Turner :

Hi Rhett, i am close to virginia beach area as well and am new to the REI. We are looking at buying second house to use it as a rental property. However, i do not have any cash on hand to put down. Would you recommend using equity that we have from our first house (about 60-70K) and/or 401K? Would that even be possible to use?

401k usually offers a much better option if you take it out on a primary residence. can you rent your current home for a decent cash flow and move somewhere else for at least a year? if not, then just use your home's equity as a dp on the next one. I would suggest working on your cash accumulation, as helocs are not end all and, like somebody else had mentioned, can be frozen/called.