Having trouble pulling equity from an investment property

12 Replies

Hey everyone. I am trying to take a loan, HELOC or Home Equity, on the equity that I currently have in an investment property, own 4 total. Two banks have turned me down. PENFED said that they won't give HELOCs/Equity loans on investment properties when you own more than 3 and Chase said they only give up to 50% loans on investment properties if they get an exception to loan on an investment.

I thought this was part of the BRRRR method? Question I have is how do I pull the equity, about 100K, from an investment property and use that to purchase another property? Thanks everyone

Chris

BRRRR is all cash to purchase. If you purchased the property using a bank loan, that's not part of the BRRRR model.

You can HELOC on a primary because you live in it.

BRRRR involves cash or hard/private money and when you refi, that's the first bank loan on that investment property.

Thanks. Banks acknowledge I have 100k in equity based on what it is worth vice what I owe.

@Ernesto, thanks, didn't realize it's cash for a BRRRR first...so do you know of any way to borrow money against an investment property?

J.,

From what I’ve seen, I’m still a novice, is that you have two options. 1) Refinance to pull out the equity. 2) Keep looking for banks that will do the HELOC on investment properties. My two business partners were having the same trouble you are, and I kept pushing them to keep looking. They eventually found a local bank that was willing to loan up to 70% with a HELOC on investment properties; which is allowing us to continue our acquisition phase. I’d suggest trying local banks, they seem to be the most willing to work with investors. Just because two or three banks said no, doesn’t mean it’s not possible:

I made somewhere North of 18 phone calls to lenders, or walked in with my portfolio.  Sometimes they don’t have an appetite for single family homes.  My local area was hit hard by the housing bust, and my local banks want to lend in the commercial space, but not residential.  Sometimes a bank is aiming to develop new investors, i.e. they are gathering up investment dollars.  This is where you see the signs telling you they pay 1% on savings accounts. 

That said, TD Bank and US Bank both offer HELOCs on investment properties. 

Usually a small local lender, a credit union or a community bank, will be the resource you need. 

@Kerry Baird beat me to it. 

You’ll have to search for a bank that will let you re if on an investment property. 

They are out there but i’m told it takes some patience and a lot of phone calling. 

$100K in equity on what value?  If you're talking about $100K equity in a $200K value property, you should just to a cash out refi.  That should get you at $50K for a single family, $40K for a 2-4 unit.   

If you mean $100K equity on a $500K value, there's not really anything there to get out. You're already at 80% LTV.

Remember that the top 10% of equity does not really exist. A sale will consume that much of the value. A foreclosure even more, which is why lenders don't want to go above 70-80% LTV on investment properties.

You'll have better luck with a cash out refi than any sort of line of credit on an investment property.

BRRR means you buy with cash or hard money, rehab to push the value up, rent to get income started, then do a new first mortgage refi. That process doesn't work if you buy a nice house with a maximum LTV conventional loan because you've done nothing to increase the value.

Thanks Jon, I should have been more specific. The SFH is worth $150k and I owe $50k. So when I talk to a bank, I need to ask for a cash out refi? (Sorry, never tried to pull money out) Realistically, with 70% LTV average on investment properties....I can expect to get about $70k out?

I recently did a 1031 and put more down that the bank's minimum requirement. The bank offered me a regular LOC on the property because of the extra equity I have in it.

Originally posted by @Christopher G. :

Thanks Jon, I should have been more specific. The SFH is worth $150k and I owe $50k. So when I talk to a bank, I need to ask for a cash out refi? (Sorry, never tried to pull money out) Realistically, with 70% LTV average on investment properties....I can expect to get about $70k out?

Do you know any banks that are investor friendly?

 I also have a question regarding Christopher's situation.

Using your real life example Christopher - If your SFH is worth $150K, if you were to cash out and refi. (approximately 75%), the most you would be able to cash out would be for $150K x .75 = $112.5K (assuming you bought with cash).

My question then would be, since you did not purchase cash but have $100K in equity, would the bank allow him to receive a refi. for $62.5k ($112.5k - $50k he owes = $62.5K)?  Does this scenario makes sense?

Its hard to find lines of credit on investment properties. Getting a cash out refi, OTOH, it not too difficult. Fannie Mae guidelines specify a maximum of 75% LTV for a cash our refi for a single family property. So, with a value of $150K, 75% would indeed be $112,500. There will be some fees on that. The refi would be for $112,500 and the existing $50K loan would be paid off. Getting a second mortgage for $62,500 and leaving the existing $50K loan in place is possible, but not easy to find lenders that do that.

Sorry, but requests for lenders can only be posting in the Marketplace.

Thanks Jon and others.  I'll keep working the phones for lenders...with the original loan a 15 yr @ 2.5%, I know giving up that rate only makes sense if I can find another great deal