Using HELOC to buy a house then convert to mortgage?

2 Replies

Hey Everyone! I'm fairly new to investing, this will be my second investment property but first time using a HELOC.

I have a $117k mortgage left of a house that appraised for $150k. The bank my mortgage is through generously offers 90%, leaving around $18k in my HELOC. My question is this:

I found a potential investment property that I could rent out for $700/mo purchase price is $16k. I want to purchase the house with the HELOC, then convert that HELOC into a mortgage to make those $18k funds available to maybe purchase another house. Is this possible to do? Do I have to wait until I have someone renting it, a year, or maybe longer? Thank you all!

Welcome @Derrick Wortman . Please validate that your bank offers 90% on a HELOC, that seems very aggressive (yet awesome if they can do it). So assuming you get the 19k from the HELOC, yes that can be your fund to purchase. You'll now theoretically be tapped on your original property and own the new property Free-n-clear. Most banks won't do loans under 50k so you'd have to get creative - I know others have done land contracts, but I have not.

Also, purchasing a home for 16k that needs no additional work seems optimistic at best.  What will happen if you get in and need to put in 10k to make it rentable? I love the ambition and want you to plow forward to the next property.  However, I also want to throw out the potential pitfalls of lack of reserves, finding someone to refi out your purchase, and the reality of not needing more than just the 16k purchase.

A better option is to find someone to partner with who can provide the funds and cut them a piece.  Even if the strategy you outlined comes to fruition, what will you do for the next deal?  Finding partners and outlets to funds is a must to scale - even if you have to give up a piece of the deal.  

I forgot who said the quote, but owning 5% of the Atlantic Ocean is better than owning all of Lake Eerie. 

@Derrick Wortman , yup you can do that in theory. You will have to call around a LOT to find a lender doing <$20k mortgages. 

@Tom Shallcross , lots of banks do primary residence HELOCs @ 90% CLTV. I have one where they didn't even charge me for the appraisal, but now fast forward a year and I have a checking account, business checking account, savings account with them, multiple debit/credit cards, bla bla bla. That's what's in it for them, the cross selling.