HELOC- Do i need to own the home to get one?

Question

i am new to investing and short on cash.  I have my parents and a brother that both own their homes.  I am wondering if it's possible to get a HELOC in my name but using one or both of their properties.  I would then use then credit to purchase my own property and start the empire.  I'm not sure if this is possible to do or if there are certain restrictions that would prevent me from do this type of deal. Would they have to get the HELOC and then let me borrow the credit or make them partners in my venture?

Craig Jeppesen · Answer

They would have to get the heloc. You would not be able to. It is not a good idea to invest in re if you don’t have any money.

Jesse Greaves · Answer

You cannot get a HELOC on a property you do not own. What you can do, is have your parents and brother get HELOCs and write you checks for the money. Wait 60 days, as banks are going to want to see two months of statements, then launch. However, if yours goes south, your folks and brother could be looking at a foreclosure.

Alex Verdugo

Michael J. · Answer

I would be careful about borrowing from family if it is backed by a heloc. If something goes wrong and you lose money then their homes are at risk.

Kristina Taylor · Answer

@Alex Verdugo yes you have to own a house to get a heloc in your name.  Your relatives can get one and in turn loan you the funds and charge interest which you can deduct.  I’d advise against it though.  You’re asking them to risk their house and you sound like you’re just starting out. This has substantial risk that they most likely won’t understand.

Michael Garofalo · Answer

@Alex Verdugo, you'll need to have your parents or brother take out a HELOC in their name since you are not on title on their homes. The cleanest way to do it would be to setup an LLC, have your family member(s) open the HELOC and then have them issue a loan to the LLC. You could take 50% equity stake in the LLC in exchange for doing all the work, and your family member(s) could take the other 50% of equity in exchange for providing the capital.

As others have mentioned, you need money to be in this game. If you have no cash reserves and are planning to start acquiring by leveraging your parents' and/or brother's home, just understand the ramifications and risk associated with that decision especially if you have never done a deal before. You need to be able to cover yourself if things go south and especially as you grow, being over-leveraged will cause you to lose your shirt.

Michael Garofalo · Answer

(apologies for double-post, something was acting up with my internet/browser when I submitted originally)

Ike Stephens · Answer

You probably won't be able to get a HELOC in your name unless you're on the title. What you could do is have the owners (your parents and brother) take out a HELOC and loan you the money (Private Money). It'd be best to draw up an agreement with them as far as interest rate, terms of payment etc. You (well, they) can probably get 85-90% LTV and interest only payments depending on where they're at.If you're brand new to REI I'd be very cautious of asking family to take that much risk on me.  It'd be best to cut all the expenses you can and save up enough cash so you have significant "skin in the game" or even fund the deal yourself. It also depends on what type of deal you're going to do. If you're planning on a traditional mortgage with 20-25% down, the lender will want to source the funds and a gift or borrowed funds won't suffice.

If you plan to house hack, you can get an FHA with 3.5% down and the funds can be gifted.If you're paying all cash for a property it won't be an issue but make sure you're going to have a high enough ARV and can accurately estimate repair costs to be able to pay back your family after you refinance or sell. If you plan to buy and hold, you'll also need to have a suitable DTI ratio and a high enough credit score to obtain a loan. Also, keep in mind that most banks have minimum mortgage amounts that they'll loan on so make sure the property will be worth enough.Real estate investing takes money and lots of it. It's best to play with other peoples money as much as you can but you'll nearly always need to have a decent amount of your own in order to play.

Mark Sanderson · Answer

Hi Alex,

Yes - they would have to get the HELOC and then let you borrow the credit or make them partners in your venture.

Family loans have advantages and disadvantages so be careful.

Here is an example property you may want to show them to help them under the potential:

This property sold Sep 2018 for $155,000 - https://www.redfin.com/AZ/Tucson/841-W-Franklin-St-85745/home/50426763/tarmls-21817566

And is now listed for $339,900 - https://www.redfin.com/AZ/Tucson/841-W-Franklin-St-85745/home/50426763

Take a look at the property pictures and see all of the updates. Also note that it has been listed for awhile. A flip can take time to happen.

Another option is to form an LLC and use corporate credit for startup funding.

Theresa Harris · Answer

Unless you are on title, I doubt they will give you a HELOC in your name.

Anthony Bellesbach · Answer

I believe they can write you a check for the heloc is one way of doing it but would call the bank they are going to use a heloc with and see ways to do it and the interest rate for the heloc.

HELOC- Do i need to own the home to get one?

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