Seeking Advice on Financing Rental Property Purchase with HELOC and Traditional Loan

[Han Jaewon]

Hello BiggerPockets Community,

I've been looking for the investment rental properties on platforms like New Western, Zillow, and Redfin. I've noticed some appealing deals on New Western, but they require purchases to be made in cash or via hard money loans. As I'm trying to approach this with a solid strategy, here's where I stand and what I'm contemplating:

1. Home Equity Line of Credit (HELOC): 

My spouse and I own our primary residence outright (no mortgage) and have spoken to a banker at PNC. We were informed that we might be eligible for a HELOC up to $480k with a minimum interest rate of 9.31%. The plan allows switching between fixed and variable rates for a fee of $100. However, I'm wondering if this is a competitive deal in the current market, and would love to hear your opinions and experiences.

2. Investment Strategy - Using HELOC for Immediate Purchase:

I'm considering using the HELOC to purchase a property, especially those available through wholesalers like New Western, which require immediate cash payment.

My strategy includes refinancing the property later with a traditional loan to secure a lower interest rate and more stable long-term financing. Is this a feasible and commonly practiced strategy? Any pitfalls or success stories would be greatly appreciated.

3. Investment Strategy - Using Traditional Loan:

For properties listed on Zillow, Redfin, and similar platforms, I'm leaning towards securing a traditional mortgage loan, assuming these purchases don't demand the same immediacy as the off-market deals.

4. Tax Implications:

If I use a HELOC for purchasing a rental investment property, is the interest eligible for tax deduction?

I am eager to learn from your experiences and insights. If you have suggestions, alternative strategies, or any advice on navigating these options effectively, please share. Your guidance will be invaluable to me as I embark on this real estate investment journey.

Thank you for your time and help!

[Jay Hurst]

Quote from @Han Jaewon:

Hello BiggerPockets Community,

I've been looking for the investment rental properties on platforms like New Western, Zillow, and Redfin. I've noticed some appealing deals on New Western, but they require purchases to be made in cash or via hard money loans. As I'm trying to approach this with a solid strategy, here's where I stand and what I'm contemplating:

1. Home Equity Line of Credit (HELOC): 

My spouse and I own our primary residence outright (no mortgage) and have spoken to a banker at PNC. We were informed that we might be eligible for a HELOC up to $480k with a minimum interest rate of 9.31%. The plan allows switching between fixed and variable rates for a fee of $100. However, I'm wondering if this is a competitive deal in the current market, and would love to hear your opinions and experiences.

2. Investment Strategy - Using HELOC for Immediate Purchase:

I'm considering using the HELOC to purchase a property, especially those available through wholesalers like New Western, which require immediate cash payment.

My strategy includes refinancing the property later with a traditional loan to secure a lower interest rate and more stable long-term financing. Is this a feasible and commonly practiced strategy? Any pitfalls or success stories would be greatly appreciated.

3. Investment Strategy - Using Traditional Loan:

For properties listed on Zillow, Redfin, and similar platforms, I'm leaning towards securing a traditional mortgage loan, assuming these purchases don't demand the same immediacy as the off-market deals.

4. Tax Implications:

If I use a HELOC for purchasing a rental investment property, is the interest eligible for tax deduction?

I am eager to learn from your experiences and insights. If you have suggestions, alternative strategies, or any advice on navigating these options effectively, please share. Your guidance will be invaluable to me as I embark on this real estate investment journey.

Thank you for your time and help!

1. Assuming good credit you can likely do better but HELOC's are priced on the consumer side of the house so they can move up or down based on the need for the deposits that come with them. I know First Citizens bank (branch on Sherry Lane in Dallas) was offering 5.99 for the first year then Prime minus .500 after that first year. No idea if they still are but you can catch specials on HELOC's. You can also get a first lien cash out in the mid 6's right now on a 30 year fixed. The appeal of the HELOC is that you do not get all the cash at once like you do on a cash out but cash out's are fixed rates (HELOC's are not) and with money market paying 5%+ plus right now your negative carry in yhe mid 6's is not terrible while you wait to find something.

2. yes, paying cash then putting perm financing on the property after the fact is often used and can be a great way to get off market homes below market value and turn around using the actual or rehabbed value to pull your cash back out. We have no waiting period cash out programs that are perfect for this or anyone should be able to a delayed financing loan to pull some cash back out. 

3. maybe not, cash can still get you a discount from some sellers.

4. Leave it for a tax pro. 

[Vanessa A Martin]

Hi Jay, 

Using equity from your home is a great way to start, there are many programs especially for investors that will not require any personal income documents or using a DTI to qualify you. I do suggest you reach out to and consult with someone who has experience in investment properties. @Jorge Vazquez would be happy to assist you and answer any questions you may have. He is a wealth of knowledge and experience. Good luck 

[Han Jaewon]

Quote from @Jay Hurst:

Quote from @Han Jaewon:

Hello BiggerPockets Community,

I've been looking for the investment rental properties on platforms like New Western, Zillow, and Redfin. I've noticed some appealing deals on New Western, but they require purchases to be made in cash or via hard money loans. As I'm trying to approach this with a solid strategy, here's where I stand and what I'm contemplating:

1. Home Equity Line of Credit (HELOC): 

My spouse and I own our primary residence outright (no mortgage) and have spoken to a banker at PNC. We were informed that we might be eligible for a HELOC up to $480k with a minimum interest rate of 9.31%. The plan allows switching between fixed and variable rates for a fee of $100. However, I'm wondering if this is a competitive deal in the current market, and would love to hear your opinions and experiences.

2. Investment Strategy - Using HELOC for Immediate Purchase:

I'm considering using the HELOC to purchase a property, especially those available through wholesalers like New Western, which require immediate cash payment.

My strategy includes refinancing the property later with a traditional loan to secure a lower interest rate and more stable long-term financing. Is this a feasible and commonly practiced strategy? Any pitfalls or success stories would be greatly appreciated.

3. Investment Strategy - Using Traditional Loan:

For properties listed on Zillow, Redfin, and similar platforms, I'm leaning towards securing a traditional mortgage loan, assuming these purchases don't demand the same immediacy as the off-market deals.

4. Tax Implications:

If I use a HELOC for purchasing a rental investment property, is the interest eligible for tax deduction?

I am eager to learn from your experiences and insights. If you have suggestions, alternative strategies, or any advice on navigating these options effectively, please share. Your guidance will be invaluable to me as I embark on this real estate investment journey.

Thank you for your time and help!

1. Assuming good credit you can likely do better but HELOC's are priced on the consumer side of the house so they can move up or down based on the need for the deposits that come with them. I know First Citizens bank (branch on Sherry Lane in Dallas) was offering 5.99 for the first year then Prime minus .500 after that first year. No idea if they still are but you can catch specials on HELOC's. You can also get a first lien cash out in the mid 6's right now on a 30 year fixed. The appeal of the HELOC is that you do not get all the cash at once like you do on a cash out but cash out's are fixed rates (HELOC's are not) and with money market paying 5%+ plus right now your negative carry in yhe mid 6's is not terrible while you wait to find something.

2. yes, paying cash then putting perm financing on the property after the fact is often used and can be a great way to get off market homes below market value and turn around using the actual or rehabbed value to pull your cash back out. We have no waiting period cash out programs that are perfect for this or anyone should be able to a delayed financing loan to pull some cash back out. 

3. maybe not, cash can still get you a discount from some sellers.

4. Leave it for a tax pro. 

Thank you for the valuable advice! I will definitely look into the options you mentioned, especially the details about the first lien cash out, and the bank you mentioned.