I am new on here but have an item I would like to get some advice on. I am a general contractor in NW Montana and am looking to start moving into real estate investment, which is why i'm here..... obviously. We are currently living in a home that I built for us that appraises at around the 400k mark. We owe 120k on it, see where I'm going with this. Right now I have private financing that is interest only @ 8.25% and balloons at 3 years. We have 2 years left on this option. My dilemma is weather we should go with a cashout-refi when we drop the private money or if we should get a mortgage for what we owe and pull a second in the form of a HELOC on the property. I like the idea of a fixed interest rate in the cashout, but its nice to know that we are only going to pay what we need on the HELOC. If we are able to pull a full 80/20 loan to value cashout on the house that gives us about 200k worth of liquid that we can use to start dumping into rentals. Not sure if we can get those same numbers out of a HELOC. I have filed an extension on my taxes from 2017 so that I can make sure that I get the numbers right so that I claim the right amount in order to get the money that we need. Can you claim less and get the same amount for a HELOC that you can for a cashout and get around paying the self employment taxes. I am ready to make a move in the next 1-2 months, just want to get some more knowledge in. Any advice would be nice? Lots of little wrinkles in this one from my point of view. I'm sure that for some of you guys this is an old hat, you are the ones I would love to talk about this stuff with.
Also, another thing i'm considering is using the money for spec housing since I can cram tons of equity into the project with my company doing the bulk of the work. Rent it or sell it? That's for another post though. THANKS!!
@Christopher Abernathy Welcome to the best community for investors in the world. I would look at doing a cash out refinance. You MAY be able to get 80% but 75% is much more likely. This also allows you to not have to get a mortgage & a heloc. It sounds like you've got some experience in building. I would just caution that I'd be careful draining equity on a home to invest. While it could work great you also want to look at the worst case scenario!
Best of luck!
Aloha @Christopher Abernathy . Good questions. I'm actually looking at doing the same thing with a place I own out here and weighing the cash out refi vs. the HELOC as well. Both sides have benefits, and although the last time I went with a CORF, this time I'm leaning towards the HELOC, for a few reasons. 1), I don't have a property in mind yet that I want to move on. With the cash out I'd be paying back the note immediately, whereas the HELOC acts like a credit card. 2) The HELOC is much quicker to get and should cost less in closing costs, etc.
I'd love to follow your journey through this process and see which route you take. I'd also love to connect with you, as your location is one that interests me for potential investments. Who knows, maybe someday we could work together...
Good luck, my friend!
@Ryan Dossey , What would be the pitfalls of draining off that much equity?
@Mike Neubauer Yea, thats what I'm running into with the heloc vs corf debate in my head. After speaking with some brokers I'm finding that some are cautioning against the HELOC because of not having a fixed rate, the terms ballooning, and even some having a fixed time that you can borrow against them and after that you cant borrow anymore, say 5 years ish. Outside of not having the fixed rate, I'm not sure how much I'm worried about those last two as first I'm looking to use the money pretty quickly and second in 5 years I sure hope to have more than this one place to borrow against.
That's interesting. I've not run into time stipulations with the HELOC, but maybe things are different everywhere. My understanding is that they can only go 1% over prime, not up to ridiculous amounts. But then, that could be different depending on the lender too I suppose. I've found the best terms with local credit unions have you tried that route? Also, I've had good luck with HELs too. The rates are fixed and usually a little lower. Anyway, I guess there's a lot to consider!