Taking the advantage of increasing equity - HELOC

12 Replies

This is not really a traditional success story, but I think it is in term of financing. Has anybody take advantage of the rising price of real estate and set yourself up a credit line or two? I would start with HELOC - Home Equity Line of Credit.

This is for my own primary resident. I purchased it for 90k with 20% down 2 years ago and now the property is worth 125k. However, I have a hard time to make bank believe that the property is worth 125k although i provided all the comps, and i have to go back and forth with banks. Long story short, i landed with Chase and was able to setup a 20k line with them, but at 7% interest rate. The rate suck but they are the only bank that are willing accept the 125k value of my house.

It costs only 50$ to setup and now i have an extra 20k to spend incase of emergency, or downpayment for the next property, and the rate is better than credit card. If i ever decide to  move on and rent this house out. I have an option do to 100% leveraging since i put only about 18k for the downpayment 2 years ago. Return rate will be infinite! 

Does anybody in Houston know a bank that is willing to do a HELOC for non primary resident? I have two more houses that i could take advantage of, but having no luck finding the bank that will do HELOC for non primary property

Now just for the sake of the pictures! Here is the before and after pics of my living room. Costco laminate was on sale during the holiday for 1.10$ per square foot and it added value into the house. This is the kind of laminate i use on all my rental houses as well. So far they have been affordable, durable, and looking nice

Would a HELOC work for a downpayment? Wouldn't they want to know the DP came form your income? or would you take the 20k HELOC and leave it in your bank for at least 2 months?

Huy,  Thanks for the education as well as sharing your story. In my experience I have never been a fan of putting a down payment down when obtaining a loan.  The main reason is, that money in your case was $18,000 just sitting there making very little money for you.  You had to end up creating another loan at 7% rate.  You basically ended up borrowing your own money back and paying someone a 7% rate for borrowing your own money back.  That is just not right.

Had you been more creative in your purchase you would have been able to do 100% financing ( yes even on an investment home). Then keep that money for what you call for emergency.

In addition, look at all the time and effort you spent chasing down and convincing someone your home was worth more so you could borrow your own money back.  That is crazy.

Rather than continue looking to do that again, instead be more creative and buy at 100% financing.  There are creative ways to do it and would love to share with you.  It does not matter what state you are in or how many properties you already own.  I have had over 27 mortgages at one time and I never had to put a down payment.  Well, let me reword that; I put the money down and the received it back at closing which created 100% financing.

I hope that helped and that you don't make that same mistake again.

Just keep in mind just in case you are wondering, " for every $10,000 you put as a down payment you are only saving an average of $100.00 a month on a mortgage payment.  If you can take that same $10,000 and invest it into something else that will generate you more than $100 per month ( which most people can) than keep your money in your pocket.

@Jim Sakalis  

 hey Jim. Any chance you can tell us how you don't put any money down?

Do you pay cash, fix up, and then do a cash out refi?

Do you acquire via subject to?

Private money?

Please share!  Thanks!

Huy. Definitely a good tool to have available. We got a heloc this fall along with another unsecured line of credit.  While I think you would have a hard time using the heloc for a down payment, if you could use it to pay all cash it could work wonders with a delayed financing or cash out refi.  We are ready to purchase this way......

Mike,

Thanks for your inquiry and question.  Well private money is one way, but I never do that since it cost too much money.

It's actually done by finding a property that already has equity in it and structuring the deal around it.  For example; Let's say you were going to purchase a home for $200,000 and the property is really worth 280k.  Your goal here is to increase your sales price so you can receive money back at closing.  In a lot of states you can actually get money back at closing as a buyer and it not be considered a kick back.  ( Georgia being one of those states).  If you are in one of those states that looks at it as a kick back than just structure the contract that you are going to receive these funds for upgrades, etc. So if you want to get your 10-15% back than you use a formula that increases the loan amount and then you receive your funds back.  What you end up doing is borrowing from the existing loan at that same interest rate.  It is just like a cash out refinance.

If you ever want to purchase a property through us we can structure it for you.

Originally posted by @Jim Sakalis :

Mike,

Thanks for your inquiry and question.  Well private money is one way, but I never do that since it cost too much money.

It's actually done by finding a property that already has equity in it and structuring the deal around it.  For example; Let's say you were going to purchase a home for $200,000 and the property is really worth 280k.  Your goal here is to increase your sales price so you can receive money back at closing.  In a lot of states you can actually get money back at closing as a buyer and it not be considered a kick back.  ( Georgia being one of those states).  If you are in one of those states that looks at it as a kick back than just structure the contract that you are going to receive these funds for upgrades, etc. So if you want to get your 10-15% back than you use a formula that increases the loan amount and then you receive your funds back.  What you end up doing is borrowing from the existing loan at that same interest rate.  It is just like a cash out refinance.

If you ever want to purchase a property through us we can structure it for you.

Hey Mike, isn't that still borrowing your own money. If the loan is for 280k on a house that your buying for 200k, aren't you paying interest on the 80k your getting back? Thanks for sharing. I really want to understand this. 

Jake 

wait, that was a stupid question. I guess your not borrowing your own money. Are you paying less interest for the $ your getting that way instead you'd be paying on a HELOC? I've never done a HELOC but I though one of the advantages was the lower rate they typically come with?

Originally posted by @Jake Landry :

wait, that was a stupid question. I guess your not borrowing your own money. Are you paying less interest for the $ your getting that way instead you'd be paying on a HELOC? I've never done a HELOC but I though one of the advantages was the lower rate they typically come with?

Yea 7% for a HELOC is pretty bad - I could have done better. My gf was able to set her HELOC up at 4.5% interest rate $35000. but she own her home free and clear with a more than excellent credit score so...different situation.

Originally posted by @Tuan Le :

Would a HELOC work for a downpayment? Wouldn't they want to know the DP came form your income? or would you take the 20k HELOC and leave it in your bank for at least 2 months?

 I think you have to leave it in your bank for a month or two..i am currently using a commercial lender so the rule is more relax

@Jim Sakalis  ,@Mike Landry  ,@Jake Landry  

Thanks for bringing up this topic!!!! I didn't know you can do such a thing. I will look more into this. not sure if it is doable in Houston - buying for 200k and finance for more..

7% is not bad if you think about...it is a bit high, but not bad at all. Many other lending types are more expensive.

HML - upwards of double digits

Cash-out refi's - closing cost plus approx. 70% LTV

Tony

I would think banks would require an appraisal to determine the market value of the property. 

Originally posted by @Fred Heller :

I would think banks would require an appraisal to determine the market value of the property. 

 Yes Fred, Chase gave me a full blow appraisal for 50$. Wells Fargo does it for free.

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