San Diego, CA · Member since 2020 · 21 posts · 18 votes
Hello Members, I would like to ask for your experiences/stories/advice on HELOCs. We have 2 rentals with a large amount of equity and a cash out refi on one of them fell through b/c the property is no longer our primary. Besides the option of selling them, we were looking at a HELOC to use the equity on our next investment purchase. Can you your share your experiences if you pursued the HELOC option? Are there penalties or fees to look for if we want to pay the money back early? Do we go with a variable rate or a fixed rate? Our plan is to use the money to purchase our next investment property all cash, do a BRRRR, and pay the money back to the HELOC upon a refi (after repairs). I appreciate your insight.
HELOCs are great in that they work like credit cards. You can draw and pay off without penalty as long as you make monthly interest payments. You usually Hanes draw period then the payoff period where you can no longer draw. Off topic, but a different option of you have a traditional investment account, is to consider taking out an NPL. Non Purpose Loan. These are revolving lines of credit also like a credit card and also very low interest (we are paying 4.5 percent right now). They are backed by the funds in your account. Which means no lengthy paperwork process. They take just minutes to open. You can draw up to 66% of your account. There is risk - should the market drop below that, your advisor could sell off funds (called a margin call) but even last springs drop didn’t affect us. You determine how much you pay and when. The interest can accrue, they don’t care. As long as you don’t reach that threshold. What’s really great is the the funds in your account continue to grow. It’s literally a loan against those funds. The more you have in your account, the more you can draw. Speak to your advisor for more info.
@Mario Arellano Thanks for letting me know. You should be able to find a lender that will be able to help you access equity. Instead of a HELOC refinancing the property would likely be easier.
I had a HELOC with US Bank and it worked great. It was on a primary home. Not sure if it matters if it is on a rental or not. We just tapped what we needed and no early prepayment penalty.
HELOCs are great in that they work like credit cards. You can draw and pay off without penalty as long as you make monthly interest payments. You usually Hanes draw period then the payoff period where you can no longer draw. Off topic, but a different option of you have a traditional investment account, is to consider taking out an NPL. Non Purpose Loan. These are revolving lines of credit also like a credit card and also very low interest (we are paying 4.5 percent right now). They are backed by the funds in your account. Which means no lengthy paperwork process. They take just minutes to open. You can draw up to 66% of your account. There is risk - should the market drop below that, your advisor could sell off funds (called a margin call) but even last springs drop didn’t affect us. You determine how much you pay and when. The interest can accrue, they don’t care. As long as you don’t reach that threshold. What’s really great is the the funds in your account continue to grow. It’s literally a loan against those funds. The more you have in your account, the more you can draw. Speak to your advisor for more info.
HELOC on an investment would be pretty high risk for the lender.
You will likely be restricted to 80% CLTV (combined loan-to-value ratio), probably need lots of cash reserves (i.e. 6 months per property), excellent credit score, and other qualifications.
You also might be limited to # of properties or other things.
I saw a different thread said Space Coast Credit Union was able to do a HELOC on investment in FL.
I don't know about that and I'm not necessarily vouching for that either.
You can not get a HELOC on an Investment property. In order to get a HELOC. It must be your primary residence. Please let me know if you have any further questions. We focus on conventional and hard money loans. Feel free to message me.
That's simply not true. I have a heloc on 2 rental properties and they are listed as commercial helocs.
@Mario Arellano There seems to be a lot of confusion/misinformation here. You can absolutely put Helocs on rentals, I do it all the time.
To answer your questions directly:
1. There's not an early payoff fee for Helocs, as they're a line or credit rather than a traditional mortgage.
2. Helocs will almost always come standard with a variable rate. There are options to pay to fix the rate, but that rarely changes the math/makes sense.
My wife and I have a specialized 1st position Heloc on our rental, called an "Offset mortgage" overseas. It's a line of credit that's tied to a zero balance sweep checking account. Every normal checking deposit we make sweeps towards the balance, lowering the outstanding and thus saving us interest cost. With positive cashflow, it creates a large snowball effect where both our outstanding balance and interest cost are dropping rapidly. We set up our line based of these current inflated values, and we're putting idle funds to work while we wait for the market to turn. When the market turns, we'll simply write a check out of our line to purchase our next investment in cash. The best part, each property purchased using the line pays off faster than the last with the added cashflow. There are a ton of benefits around cashflow, flexibility, DTI, and interest savings. I always recommend everyone educate themselves on this style of loan as an option. For those who qualify, it's a powerful financial tool.
It's hard to find one that does HELOC on investment properties, but they're out there. One of them is Penfed. The only caveat is that you need to have less than 4 investment properties in total. If you have more than that, then it's too risky for them.
@Mario Arellano We have used HELOC from our primary towards full cash or as down payment. We have not taken HELOC on the investment properties yet. HELOC in my opinion works great since we follow a plan to pay it off or reduce the balance so we can use again.
@Mario Arellano I've answered this in another post recently so I'll just copy & paste it here.
I've been searching for this as well and it seems (at least to me) that PenFed has the best product available for a HELOC on an investment property. As of right now, their restrictions/limitations due to COVID is that they'll give the loan if you have 3 properties or less TOTAL under your name (primary or investment). I'm currently going through the underwriting process and has been smooth so far. (I should close very soon. likely within the next week or so) They do a desktop appraisal and drive-by appraisal which are both free. But if they're not able to find appropriate comps (which I find it hard to believe lol), then you can hire an appraiser.
If you want my loan officer's contact to inquire more info or to apply, please DM me. Thanks!