If I have a HELOC am I essentially a cash buyer?

8 Replies

I'm looking to make an offer on my first investment property within the next couple of months. I know that speed is essential in finding good deals, and I hear a lot about cash offers or cash buyers closing quickly. I have a lot of equity in my home, and I'm wondering if getting a home equity line of credit, or if getting pre-approved for a home equity loan essentially makes me a cash buyer. Do I need to take out a loan prior to putting in an offer in order to close quickly, or are there some pre-approval steps that I can take that will allow me to put in offers and close deals quickly without having "cash" on hand?

Hi @Drew Spencer , I would suggest that you actually GET the HELOC in place. Once you have the line available, if the line will cover the entire purchase price plus closing costs, then you can submit your offer as a cash offer, which of course makes it more attractive to the seller. If you are only pre-approved, I would NOT recommend you submit your offer as cash because there is a chance you don't close on the line.

how that would work is get your HELOC .. then take the advance and put it in your bank account.

then when you make an offer you show POF in the form of your bank statement and balance that is a true cash buyer and those are who your competing against..

pre approval for  a heloc means nothing to a seller.

also keep in mind HELOC's in down markets get frozen or called.. so make sure you use those correctly.

@Dan Barli and @Jay Hinrichs , thank you. This is exactly the kind of feedback I was looking for. 

Jay, can you elaborate a bit on the HELOC's getting frozen or called? Does this mean that if I take out the advance and put it in my bank account now, but don't make an offer on a deal for say three months, that the funds may be frozen when I make an offer in the future?

Originally posted by @Drew Spencer :

@Dan Barli and @Jay Hinrichs, thank you. This is exactly the kind of feedback I was looking for. 

Jay, can you elaborate a bit on the HELOC's getting frozen or called? Does this mean that if I take out the advance and put it in my bank account now, but don't make an offer on a deal for say three months, that the funds may be frozen when I make an offer in the future?

 read the small print of your heloc.. for further explanation  they are all unique.. but basically Heloc's can be frozen if the bank deems their position has been weakened by market conditions.  

@Drew Spencer using your HELOC for what will be viewed as a cash offer to a seller is a great tool and one I've used many times. One point of clarification on the responses above, you do not need to actually draw the funds and put them in your bank account to show proof of funds. Your bank should be able to provide a letter that says you have the funds available just based on looking at the availability under the HELOC you have with them. You don't want to draw on the line, put in in your account, make an offer, have the offer not get accepted (for whatever reason) and then pay back the line every time. The POF letter from your bank also does not need to say the total you have available. For example, let's say you get a $200k HELOC and it is all available and you want to make a $70k cash offer on a home. Ask your bank to word the letter to say that you have at least $70k in availability or something to that effect. That way the seller doesn't see that you have a ton of room to come up in your price. I would consider using the HELOC as a way to make cash offers and close quickly as a way to get to deals faster and make your offer more attractive. This will also save you banks fees which can add up once you do this a few times. What sort of investment property are you looking to buy?

@Zachary Metler I appreciate the response. Asking the bank to write a POF letter tailored to the offer I'm making is great advice. I'm looking for rental properties (1 to 4 units) in the Warren, Eastpointe, Hamtramck area. From what I understand if the property is listed on the MLS or other publicly available list it probably isn't a great deal. I'm reading the Art of Wholesaling right now, and am considering trying a direct mail campaign to see if I can find motivated sellers.