HELOCs on Rental Units

5 Replies

Good day, 

So I keep hearing about BRRRR as the way to go, but I'm running into issues with banks not wanting to offer lines of credit or cash out refinances. Market's pretty good in Indianapolis and the suburbs, and my credit's in the excellent range. So I am thinking it's just a matter of the banks don't write scripts on rental properties, or have minimal experience writing scripts on rental properties, so they are just saying no.

Anyone know of a bank that does these types of loans for us more often?  Maybe I am just asking the wrong banks, being my thought.

I just reached out to my mortgage broker to let him know I am buying a property cash and after reno will be refinancing it. He told me that Fannie Mae has decided to reduce their portfolio of investment properties to 7%, due to the riskier nature of these transactions and the current market. He said I am going to be paying a higher rate due to this change. But it will still be possible. Maybe reach out to a broker? 

@Sean Honeycutt just like everything else.... its a numbers game. I recently made a list of 50 credit unions and banks to call re Helocs on investment properties and I can up with 1 in CA that would do it for a worthwhile CLTV but they had weird arbitrary rules that I couldn't work around. People have mentioned Penn Fed and Quorum. I have spoken with PFCU and they will do them but the CLTVs aren't great or at least weren't great 3 months ago. Maybe that has changed. Quorum is on my list to call this week.

After making so many of these calls I realized that on the HELOC pages for these FCUs and banks if you sroll down to the fine print it will tell you most of what you're looking to find out. Saved me a lot of time vs calling.

Good luck.

Originally posted by @Sean Honeycutt :

Good day, 

So I keep hearing about BRRRR as the way to go, but I'm running into issues with banks not wanting to offer lines of credit or cash out refinances. Market's pretty good in Indianapolis and the suburbs, and my credit's in the excellent range. So I am thinking it's just a matter of the banks don't write scripts on rental properties, or have minimal experience writing scripts on rental properties, so they are just saying no.

Anyone know of a bank that does these types of loans for us more often?  Maybe I am just asking the wrong banks, being my thought.

 It's not something most banks want to do.  Do you have an aversion to standard cash out? 

@Nick Giulioni , Cash out can work, but the problem comes in paying interest on the money while I don't need it. With a HELOC I only draw what I need and then pay off the balance. I had one, but as soon as I opened a new unit, the bank decided to freeze it, but it was great while I had it because I could pay contractors with credit card and then pay off the card right away and finance through the HELOC.

If I do a cash out refi, I'll have to leave the funds in a CD or something until needed. Not a great ROI.

@Robert Hooks , sounds like it may just be an industry wide crack down on HELOCs in general?  Makes me wonder if part of the problem is that I am trying to get the HELOC on a rental unit and not on my primary residence.  If so, maybe I should do a combination - refinance the rental unit, take the balance of the cash out and pay down the primary address, then get a HELOC on the primary address?  Seems like playing shell games, so I'd have to be super careful to document everything for the IRS...

@Melissa Uppelschoten , Yes, getting property three up was more difficult.  It took a lot of shopping just to get a mortgage for it.  I wonder if banking is just going to be super tight gripped on the purses waiting to see what happens with inflation from the stimulus bills + businesses after CoVID + regular market forces.  That makes sense to me, just makes life a bit more difficult. 

Originally posted by @Sean Honeycutt :

@Nick Giulioni, Cash out can work, but the problem comes in paying interest on the money while I don't need it. With a HELOC I only draw what I need and then pay off the balance. I had one, but as soon as I opened a new unit, the bank decided to freeze it, but it was great while I had it because I could pay contractors with credit card and then pay off the card right away and finance through the HELOC.

If I do a cash out refi, I'll have to leave the funds in a CD or something until needed. Not a great ROI.

@Robert Hooks , sounds like it may just be an industry wide crack down on HELOCs in general?  Makes me wonder if part of the problem is that I am trying to get the HELOC on a rental unit and not on my primary residence.  If so, maybe I should do a combination - refinance the rental unit, take the balance of the cash out and pay down the primary address, then get a HELOC on the primary address?  Seems like playing shell games, so I'd have to be super careful to document everything for the IRS...

@Melissa Uppelschoten , Yes, getting property three up was more difficult.  It took a lot of shopping just to get a mortgage for it.  I wonder if banking is just going to be super tight gripped on the purses waiting to see what happens with inflation from the stimulus bills + businesses after CoVID + regular market forces.  That makes sense to me, just makes life a bit more difficult. 

Pros and cons. You could also be paying 50% more for the money that is outstanding on a HELOC. There are lots of ways to invest that cash that will exceed the 4% that you would probably pay. Feel free to reach out.