What options do I have as a homeowner?

9 Replies

Hey again, I am a homeowner and have been for the last almost 3 years. I was wondering if there was anything I can do, or if this is a smart move, with borrowing from/against my house? I do have equity built up and a decent down payment at purchase but do not want to start pulling from my savings for a flip or rental, I would like to get started with either one of these strategies as I do not have any rentals or flips under my belt yet. Has anybody had any experience in this if so do you mind unpacking what you did? Is this a smart way to get started?

You don't really provide many details in terms of the numbers, your finances, neighborhood, etc. Regardless, here are some things you can do:

1. Sell the property and move into somewhere cheaper - this will loosen up your debt-to-income ratio and permit you to have greater access to credit that you can use for real estate investments.

2. Rehab your property then sell. If you rehab your property, the equity will increase and then you can justify a higher sales price which will essentially pull out cash from your investment. It would be a live-in flip.

3. If there is sufficient equity in the property, perhaps you could explore a cash-out refinance. This will allow you to pull out your equity as cash and you can place this extra cash as a down payment onto a rental unit. Follow-up with the BRRRR strategy.

4. In the alternative, you could do a HELOC (Home Equity Line of Credit) on your property and use this source of cash to finance your next purchase.

As a footnote, please be sure to check out BiggerPocket's connections on hard money lenders.

I hope this gives you some insight into what maneuver you can do.

@Jordan Pothier You got some great advice from @James Galla . The only thing I would add is that unless you put 30% down or more, you won't see much benefit from a refinance and your amount able to borrow on a HELOC will be a maximum of 80 - 85% of the homes value less what is owed (which again, unless you put 30% or more down on your house will be near nothing). This is because after 3 years you have paid very little of your principal down, even if you are on a 15-year note.

Going from here, if you have strong W-2 income and don't need to close quick, there are a few lenders out there that will borrow on fix and flip properties but will require a hefty down payments in the range of 20%. If you don't have the W-2 income, time, or down payment, then you will probably need to go with a hard money lender.

@James Galla  that is really a lot of great information! I am not sure really what questions to ask and what numbers to provide initially in this thread, I am a newbie and still learning. As far as 1 & 2 go my wife is pregnant and we have almost 3 children and I am not wanting to put that type of stress on my wife with a move. We are planning to be here at least 10-15 more years unless we are able to create different plans for our future or our market just makes it a no brainer to sell. We have pretty much done almost all thats necessary for rehabs so 1&2 are definitely options down the line. Thank you for all these suggestions!

@Ryan Blake I appreciate your input as well! I am a small business owner my wife is a medical esthetician and we are not too sure what would be a smart move on a hard money lender as far as percentages go. Do either of you mind if I pm you with other information to explore options, as I am sure other questions will come up. Thanks again, you guys for the information!

@Jordan Pothier Hi Jordan, my husband and I recently purchased a rental property using a fixed rate HELOC through BB&T. The equity from our home allowed us to purchase the property all cash. The rent we collect pays the HELOC and generates $150+ in cash flow after expenses. If we didn't tap the equity, that money would have just sat there tied to our home. We tapped the equity because the market is so hot in my area and the FMV went up substantially. Rather than having that FMV/appreciation disappear, we wanted to turn it into something tangible. So, if you can find a deal where you can purchase the property in cash and cash flow, tapping that equity is not a bad idea. What you don't want to do is use equity as down payment to finance another property. Going from one to three loans (home mortgage, equity loan, and financed loan for investment) will not make sense financially. Hope that helps

Purchase price: $95,000

After repair value: $105,000

Gross rent $1,250/month

20 year Fixed option HELOC $71,250: $500/month

Cash down payment: $23,750

Taxes: $93/month

Insurance: $32/month

HOA: $276/month (this is a condo unit, the HOA is responsible for pest control, trash, and everything outside, so CapEx)

Net Cash flow: $349.00/month

We asked the seller to buy a comprehensive home warranty ($450 annual) in case anything breaks the first year.

Note I did not include closing costs. The HELOC closing was free b/c it was paid for by BBT. The cash closing for the property was about $1000 (inclusive of attorney fees, title insurance and recording fees)

Go to your bank asking how much you can borrow as a HOME LINE OF EQUITY. Once approved it is good for several years as good as cash. Rate is about 5.1% right now.  No withdrawn no pay.