Second mortgage on rentals

8 Replies

Was wondering if anyone hear has taken a second mortgage (Heloc, loan, etc) on a rental property and reinvested the profits to get a better return without having to sell the property. Any success stories?

I'm guessing that method is very popular amongst seasoned investors - but they would/should only be looking to do that if their anticipated profits on top of their higher interest repayments are STILL as good as their 'normal' mortgaged ones ie. Smokin' deals found when cash reserves are zero - it's bound to happen! But, fortune favors the brave, and all that. Cheers...

That is sort of what I'm planning to do.   I bought my first property all cash.  After it seasons for 6 months,  I will get it reappraised and hopefully do a cash out refi for the entire amount I put in.  Then I will use that money to buy my next property.  While that is not a second mortgage,  it is using the equity in my property to buy another.

Hey Tim, 

sounds like a good idea. If you can buy the properties low enough you can theoretically keep that ball rolling infinitely. I actually have 150-200k equity in 5 different properties but it looks like the market has more room to go up still. The plan is to take out a HELOC on each one, use that money to buy notes, and significantly increase my rate of return w/o having to sell the homes and miss out on the potential increase in prices. The tricky part is finding a bank/finance institution that will lend on investment property. Helocs can be as low as 3-4% right now. Hoping someone out there sees this and has been in a similar situation.

@David Greene  You seem very 'bullish' about future appreciation. I feel that you are entering dangerous territory if you now borrow heavily on your equity to buy more assets just because you believe that they SHOULD increase in value! Remember, future values CAN go either way! Cheers...

Hey Brent,

Thanks for the advice. I do agree it's wise not to overextend. I was actually planning on using the money to buy cash flowing notes, not to buy additional properties. While I'd love to buy more property instead, the notes are a safer bet and a better hedge against dropping rents or home values. Thanks for the concern though!

HELOCs adjust so I if woud be cautious.

On another note, I can't find anyone who will do a 2nd on a 4-plex investment property. I checked all the big banks and several mortgage brokers with no luck. They all want to do a cash-out refi and be in first position. Since I only need the money for a flip, I don't want a complete refi as I would rather pay off a 2nd once the flip sells.

I've found it's harder to borrow against investment properties without well established revenue stream. A heloc is for primary, but a commerical lender can do something similar with your investment properties. 

Alex, 

Can you recommend a good commercial lender for this?

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