Would opening up HELOCs on all my properties a bad idea?

Question

Still quite new to BP and loving all the new strategies I'm coming across.  I recently heard a BP podcast that is good idea to open HELOCs on properties now while value is up.  So, I need some input from seasoned investors who've leveraged equity through HELOCs... or lenders that can help guide me in the right direction.

I currently own 5 properties in Los Angeles that have built a lot of equity the last few years.  4 of them are rental properties that are all cash flowing.  All currently have LTVs ranging from 16%-50%.    I calculated atleast $2.8-$3M in built up equity.   So my original strategy was to pull HELOCs on ALL my properties.. and leveraging the equity (HELOC funds) to buy more properties to rehab and refinance and hold as rentals... (and also flip a few properties).

So I started doing that... I found a local bank (EastWest Bank) that was able to give me a $300K HELOC on one of my rentals.... and I found another bank that recently let me pull off a $600K HELOC on my primary home. However, I was told I was at 48% DTI with my current income.... and I was also told by a broker that I may not qualify for conventional loans any more because of my DTI... even though I make a 6-fig salary and FICO above 780. I knew I was going to run into this issue at some point I just didn't expect it so soon.

So now this is where I have some concerns...

- Is it a BAD strategy to pull HELOCs on the rest of the remaining properties???

-  Would opened HELOCs with unused/zero balance affect my DTI ratio?   I'm getting a lot of mixed answers on this.

- Would the DTI still affect my ability to refinance a purchased property (via HELOC funds) after its been repaired/rented?

I keep going back and forth about if I should open another HELOC.  Im worried opening all HELOCs will just make it worse for me once I'm at a point where I need to refinance a newly purchased property after rehab/repair/rented has been completed.  I would love to hear thoughts from those that have some experience in this matter.  Thanks in advance.

Alvin Uy · Answer

Thanks for your response.  Yes, definitely planning on using it only for temporary leverage/ financing.   In fact, Im already using about 300-400K to flip a property in progress... profit will be used for downpayment towards next buy and hold.   Things are just moving slow and playing with the idea of acceleratings by doing other project simultaneously.

I still have the ability to get additional HELOCs off other properties...  But Not sure if I should do this while I can still leverage equity before potential down cycle.   The impacts on DTI and FICO are main concerns that is really deterring me from taking further action.  I can't seem to get a straight answer from any one... Including some underwriters that I know.

Just seems like such a gamble.   What to do.. what to do?!?!?!

Im also hoping someone here can also offer other advance strategies of how to best utilize my equity... ( aside from Cashouts/Helocs )

Clarence Johnson · Answer

@Alvin Uy I think HELOCS are a great option if used correctly, its cheap money. reusable, doesn't impact your rate and term, and they have lower origination cost than cash out refis.  At 900k I believe you have enough HELOC funds to do your flips and possibly make buy and hold investments.  For my last purchase, some lenders gave me mixed answers on how HELOCS impact your DTI, but there are many who will not count the unused credit against you.  If DTI is a concern, run through a few "scenarios" with your lender considering that any property you buy will be income producing and add to both income and debt.  DTI can impact your ability to refi, however all these are scenarios that a lender can project and let you know if there is a challenge with your exit plan prior to purchase or rehab.

John Warren · Answer

@Alvin Uy this is exactly why I jumped into the world of commercial real estate. Residential lenders can be frustrating once you start getting some assets piled up. They seem to be very good at adding together all the debt, but not quite as skilled at adding all the cash flow back into the equation.

As for your HELOC question, I cannot see any down side to having access to more capital. With great power comes great responsibility, so just make sure you use the leverage wisely. As for your DTI question, it all comes down to how the banks calculate this stuff. You might have to find some small local banks to do the deals.

Alvin Uy · Answer

Bumping this... to hopefully get more responses.  So Should i take advantage and open more HELOCs?

Alvin Uy · Answer

Bump!   Just wondering if theres anyone else that can chime in.

Alvin Uy · Answer

What do you mean by “jumped into the world of commercial real estate”?  Are you refering to going into multi-units above 5+?

Would opening up HELOCs on all my properties a bad idea?

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