HELOC on paid off rental property?

25 Replies

Hi! BP people,
I was unable to find an answer for the following question. I own a Townhouse (no mortgage), which is being rented. I was wondering if I can do a HELOC ? I understand that banks don't like HELOC when is not your primary residence, but mine is already paid off. Advice will be appreciated. Thank you! Javier

Yuo! You should be able to do that. Go ahead and speak with your lender.

They would appraise the property and then loan you a percentage of that value.

Thank you! guys. I made my first call to Bank of America, they told me that they don't approve HELOC to second homes or rentals, I explained to them that my Townhouse has no mortgage but still they don't do it. I will appreciate if anyone is aware of lenders approving HELOCs for these scenarios (Florida) if possible?

                                                       Thanks! Javier

try a credit union or other small local bank? 

I would try smaller banks and credit unions.

Try a credit union or other small local bank. One person telling you no is certainly not uncommon in this area. Just keep looking. 

I have a HELOC on my SFR, which has been useful for repairs and unexpected monetary needs. As part of my plan to expand, I went in and spoke with my loan officer about increasing the limit so I could use that equity as a quick way to obtain a downpayment. I was informed that my credit union has a limit of $75k. She said they could probably go a little higher if it met my needs adequately, but for a six figure amount, I would need to pursue a cashout refi. Unfortunate. Does anyone else have experience with this? Have you considered transferring it into an LLC while free and clear and then obtaining a secured business LOC by the property?

I had contacted Wells Fargo and was informed I can do a heloc on an investment property for up to 60% LTV. I did not move forward because I have to have 6 months ownership of the property. Have to wait until December

Are you planning on taking the HELOC out on the property you already own, or would it be on the property you're purchasing? If you own it free and clear, I think you could do whatever you'd like.

@Ray Reed I've Been debating how to pull out the equity from my property. Did you try to do that on one that you already owned? Or was it a property you'd just purchased? My FCU imposed that arbitrary $75k limit on all HELOCs regardless of the property value. I'm debating moving it into an LLC and going the business LOC. Have any experience with what is different between the two? Was the business route willing to give the larger value?

@Eamon Conheady i didnt try to do it yet but i called wells fargo. the property was purchased 6/24 all cash but wells fargo has a 6 month seasoning requirement so i would have to wait until 12/24 before i can apply. i have another investment property free and clear that is i have owned for years but i did not try that one. I don't have any properties under any LLCs yet. 

@Javier Guanda I think your question is excellent. If you continue receiving resistance from lenders and you intend to use the proceeds from the HELOC for a new purchase you may also ask lender if you can collateralize the property and use it for the new property purchase. This option may open up opportunity for you. You may have to request to speak to the lenders commercial department. Good Luck! https://en.wikipedia.org/wiki/Collateral_(finance)

as many people have already stated in the forum you are better off going to a local bank. I am currently in a similar situation in Upstate New York. I attempted to contact the larger banks and was face with a very quick NO as you were. After that I contacted some local banks and have had a lot more success at moving forward in the LOC process. Many of the smaller banks will require you to open some kind of account with them before they will lend to you, but a basic checking or savings account is not hard to set up, if you do not use the bank for the loan cancel the account. And if you do get a loan from them you could choice to use that account to hold the security deposits for the new property you buy. It is not a bad idea anyways to start a small relationship with other banks and lenders to get your foot in the door for future purchases.

I visited some websites mentioned above and they offer HELOC to second homes.

@Eamon Conheady I own the property and I'd like a HELOC for a new one. The strategy is as follows:

1) Cash Offer 90-100K

2) Advanced Cosmetic repairs

3) Fix /Improve / Sell 

4) Pay HELOC and costs

5) Take Profits

6) Repeat

My issue right now is to find a good deal. After calculations, the purchase price should be low and I'm looking for in South Florida areas which I don't see a good inventory right now with that characteristics. 

The profits would be generated from a good purchase price and fix it myself or low contractor work. I'm expecting to make 10-15% profits after the cycle is completed.

Another option would be to buy and hold, but I don't like the idea of HELOC under this strategy.

Please, your feedback will be highly appreciated. I'm a pharma guy with very poor experience in real estate.  

Thanks! Javier

We looked into a cash-out refi on our investment property to free up the equity and purchase more property.  While we did finally find some local banks that would give cash-out on an investment property, they wanted excessive fees, a much higher rate, and a balloon at 7 or 10 years, when we feel interest rates will be much higher, so we did not move forward.    

@Javier Guanda I did a cash-out refinance on a rental property recently. What are the advantages of using a HELOC instead of a cash out? Just curious. I'm suspecting less closing costs and maybe no appraisal? I would consider the cash out for the lower rates (I assume). Then you can hold the cash in your bank and use it over and over like a HELOC that cannot adjust upwards. Just one idea. Good luck!

@Javier Guanda , I reckon @Michael Karl has it right - "moving forward in the LOC process" ie. Line Of Credit, or, Equity Line Of Credit. Leave out the word "Home" (which Lenders take to mean primary home). When people ask their Bank to be put through to the HELOC department, and start talking to that department about borrowing against investment properties (but can't or won't include their primary) - no wonder they're sent packing!

I just made a lot of that up - but how else can it be explained that most Banks DO offer Equity Lines of Credit - but tell people like Javier that unless it's against their primary, they can't have a HELOC? The same question is asked in multiple threads - every week! Sheesh...

@Will Pritchett

                        Thank you for the idea. Clear example of my lack of experience. I will research about that.  Thanks! Javier

@Javier Guanda , yes you can get HELOCs on Inv property condos/townhouses also. If you want larger banks, I know both Wells Fargo and TD bank offer this product. 

I'm going to suggest a slightly different route.  Call a mortgage loan originator / mortgage broker. They will shop your options for you, and will help you find the best solution. 

Talk to a commercial banker at a local bank. 
It's super easy to get a line of credit secured by paid off real estate. 

I also have a rental propertythat I own with no mortgage or loans. I'm wanting to borrow against my rental to purchase a second rental. My mortgage broker has advised me to put my residence and my rental property into an LLC and then go for a commercial loan.

I'm seeing that this would be easier but I had a quick look on the net and the interest rates seem so high! Is there any way around that?

I was in the same boat and ended up finding a local bank that has a portfolio lending department that will be giving me a HELOC at 60% LTV with origination costs of $2k and interest rate of prime+1. Draw period of 10 years and repayment period of 20 years.

@Javier Guanda I just pulled out a HELOC on our SFR rental through PenFed credit union based out of VA. We are in Washington and they were very easy to work with and gave us up to 80% LTV at a solid rate. I don't know if they will work for you but I highly recommend them. Best of luck.

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