If you had access to a $900k HELOC, what would you do with it?

77 Replies

Ok.. so I was able to pull $900k+ worth of HELOCs between 2 of my 5 properties.   I decided to temporarily leverage some of that equity into a property Im flipping (ground-up/new construction) here in Los Angeles.  The plan is to pay it back once the property sells with some profit.   So now, Im wondering what other investments I can leverage it into next...

What would you do if you had access to $900k+ HELOC?! I'd like to hear some ideas or other strategies.... and why you strongly feel about it.

You should buy homes and convert them into half-way homes or assisted-living home. The cash-flows on those are ridiculously high. Then you can sell it or refi it using the business cash-flow. 

Originally posted by @Mujahidul Huq :

You should buy homes and convert them into half-way homes or assisted-living home. The cash-flows on those are ridiculously high. Then you can sell it or refi it using the business cash-flow. 

Interesting suggestion. Although it sounds like starting another business...or a full time job. LOL.     Im not sure I have time, commitment, or experience to manage something like that.  But thank you for the suggestion. 

 

Originally posted by @AJ Nemeth :

@Alvin Uy

Are these HELOCs on investment properties? Do you mind sharing which bank you worked with?

Yes! Well, one of them any way. Im in California... My primary HELOC is through US BANK up to 75% LTV "full docs". And East West Bank offers HELOC on non-owner occupied investment properties up to 60% LTV ($500K max) with "no docs". This lender is willing to give me HELOCs on all my other properties, but im not sure if its such a bad idea to pull 3 more HELOCs.

I would subject my existing properties to my acquisition criteria to ensure they remained good investments going forward.  If not, I'd sell/exchange.

As far as strategy goes, that is dependent on your goals and opportunities.  My goals don't involve direct to owner marketing, calling, and vetting 100 opportunities to find 1....and I am re-deploying capital from value plays to cash flow plays; so, it's passive cash flowing, value add MHP and SS for me right now...and some commercial MF.  Just pivoting with market conditions.

just make sure U read the fine print on those helocs  IE the provision to call or freeze them .. 

if I was using them for reposition ( which is what I would do not long term buy hold down payments to high of leverage in the top of the cycle).. then I would evergreen the amount you need to finish the project.

in the last downturn I made a lot of rescue loans to flippers who had used their helocs to do their rehabs .. when the helocs got LOCKED they were stuck..  so either have cash in the bank or if its a 100k project take the entire 100k out day one so you know u have funds to finish it.. you wont know your heloc is frozen until after the fact  IE you go to access it and it wont work.. 

@Jay Hinrichs Yes, i agree with not using it as downpayment for long term buy and hold.  Im using it as temp credit line to flip right now. ( but profit from those flips will go towards long term buy/hold properties).  Aside from flipping, which is starting to get tight... what other reposition strategies can I employ?

Yes,  i’ve heard about the lockouts on HELOCS from last down turn. Definitely in the back of my mind.  But you’re not suggesting to pull out entire $900K now are you?  That would a hefty holding fee.

Originally posted by @Alvin Uy :

Ok.. so I was able to pull $900k+ worth of HELOCs between 2 of my 5 properties.   I decided to temporarily leverage some of that equity into a property Im flipping (ground-up/new construction) here in Los Angeles.  The plan is to pay it back once the property sells with some profit.   So now, Im wondering what other investments I can leverage it into next...

What would you do if you had access to $900k+ HELOC?! I'd like to hear some ideas or other strategies.... and why you strongly feel about it.

We're all gonna suggest to do what we know.  What is it you like to do and are good at?

Taxes are our largest lifetime expense. I wouldn't flip or lend outside an IRA. Two things I wouldn't do.

I'd buy value add multis because that's what I do and they have tax advantages.  Tie whatever you decide into how it will affect your overall tax situation.

Take LOC small print into account as Jay mentions including their right to freeze or call the line along with any blanket/cross-collateralization clauses. Might be a snake in the grass. A 900 pound one.

Originally posted by @Alvin Uy :

@Jay Hinrichs Yes, i’ve heard about the lockouts on HELOCS from last down turn. Definitely in the back of my mind.

forewarned is forearmed  ..  Especially on BP were people think or treat these as 30 year fixed loans.. I would say 90% of folks that get helocs have no clue that there is language in their note that gives the lender full unilateral discretion on advances in times of real estate uncertainty or pull back..   I think helocs are great for short term make a bunch of dough type things.  At least that's my personal opinion. 

There was a post last year of this young family in LA  who had 250k in a heloc.. they took it all out and bought D class ( they even admitted it in Memphis with those funds) you run the numbers they look spectacular like all D class does because if it does not who would buy it.

100 BP members got on congratulating them wanting to emulate them..   

I made a post :    YOU DID WHAT ?

you levered your fine CA family home to buy the most unstable hard to manage asset in the US regardless of city of course it just happened to be Memphis and you think you now going to quit your day job.. I got over 100 up votes.. as really the only one who posted about how risky and dangerous that strategy was/is.

Originally posted by @Jay Hinrichs :
Originally posted by @Alvin Uy:

@Jay Hinrichs Yes, i’ve heard about the lockouts on HELOCS from last down turn. Definitely in the back of my mind.

forewarned is forearmed  ..  Especially on BP were people think or treat these as 30 year fixed loans.. I would say 90% of folks that get helocs have no clue that there is language in their note that gives the lender full unilateral discretion on advances in times of real estate uncertainty or pull back..   I think helocs are great for short term make a bunch of dough type things.  At least that's my personal opinion. 

There was a post last year of this young family in LA  who had 250k in a heloc.. they took it all out and bought D class ( they even admitted it in Memphis with those funds) you run the numbers they look spectacular like all D class does because if it does not who would buy it.

100 BP members got on congratulating them wanting to emulate them..   

I made a post :    YOU DID WHAT ?

you levered your fine CA family home to buy the most unstable hard to manage asset in the US regardless of city of course it just happened to be Memphis and you think you now going to quit your day job.. I got over 100 up votes.. as really the only one who posted about how risky and dangerous that strategy was/is.

Funny you bring that up.  I believe I read that post not too long and its been haunting me ever since.  LOL.   

So what are “short term make a bunch of dough type things” would you use it for if you were in my shoes?

Originally posted by @Steve Vaughan :
Originally posted by @Alvin Uy:

Ok.. so I was able to pull $900k+ worth of HELOCs between 2 of my 5 properties.   I decided to temporarily leverage some of that equity into a property Im flipping (ground-up/new construction) here in Los Angeles.  The plan is to pay it back once the property sells with some profit.   So now, Im wondering what other investments I can leverage it into next...

What would you do if you had access to $900k+ HELOC?! I'd like to hear some ideas or other strategies.... and why you strongly feel about it.

We're all gonna suggest to do what we know.  What is it you like to do and are good at?

Taxes are our largest lifetime expense. I wouldn't flip or lend outside an IRA. Two things I wouldn't do.

I'd buy value add multis because that's what I do and they have tax advantages.  Tie whatever you decide into how it will affect your overall tax situation.

Take LOC small print into account as Jay mentions including their right to freeze or call the line along with any blanket/cross-collateralization clauses. Might be a snake in the grass. A 900 pound one.

right now its all about value add as Steve alludes to..  Or getting in front of the path of progress not investing were the path has over run the progress and its in economic, social  and functional obsolescence.   As for tax savings just buy a bigger airplane and take the 179 deduction and make as much as you can on your real estate .. LOL>..    

Originally posted by @Steve Vaughan :
Originally posted by @Alvin Uy:

Ok.. so I was able to pull $900k+ worth of HELOCs between 2 of my 5 properties.   I decided to temporarily leverage some of that equity into a property Im flipping (ground-up/new construction) here in Los Angeles.  The plan is to pay it back once the property sells with some profit.   So now, Im wondering what other investments I can leverage it into next...

What would you do if you had access to $900k+ HELOC?! I'd like to hear some ideas or other strategies.... and why you strongly feel about it.

We're all gonna suggest to do what we know.  What is it you like to do and are good at?

Taxes are our largest lifetime expense. I wouldn't flip or lend outside an IRA. Two things I wouldn't do.

I'd buy value add multis because that's what I do and they have tax advantages.  Tie whatever you decide into how it will affect your overall tax situation.

Take LOC small print into account as Jay mentions including their right to freeze or call the line along with any blanket/cross-collateralization clauses. Might be a snake in the grass. A 900 pound one.

“I'd buy value add multis because that's what I do and they have tax advantages. Tie whatever you decide into how it will affect your overall tax situation”

Can you ellaborate what you mean by this?   

Originally posted by @Alvin Uy :.

“I'd buy value add multis because that's what I do and they have tax advantages. Tie whatever you decide into how it will affect your overall tax situation”

Can you ellaborate what you mean by this?   

Taking into account your overall tax situation?  If you are already taxed heavily in your career/w-2, avoid investments taxed as more ordinary income like flipping and lending. Diversify your income type into something like buy and hold.

Your turn.  What do you like to do? What are you good at??

Very interesting discussion. You could do a lot with $900k, but it depends on the market you are buying in as well as the terms of your HELOC.Your numbers and market should help you make wise decisions on this. What's the interest rate on the HELOC? What are the terms and conditions? It's hard to answer your Question without having the data to do so. Best wishes.

@Mujahidul Huq

Hi there, What’s a good business model for that? Is there one where you don’t have to have a caregiver living on site 24/7? I had looked into it before but in every scenario I encountered the caregiver expense ate up the majority of my profits. I would love some insight as I see the potential to maximize a property’s upside is huge, I just haven’t figured out how to do it.

Thanks!!

Originally posted by @Steve Vaughan :
Originally posted by @Alvin Uy:.

“I'd buy value add multis because that's what I do and they have tax advantages. Tie whatever you decide into how it will affect your overall tax situation”

Can you ellaborate what you mean by this?   

Taking into account your overall tax situation?  If you are already taxed heavily in your career/w-2, avoid investments taxed as more ordinary income like flipping and lending. Diversify your income type into something like buy and hold.

Your turn.  What do you like to do? What are you good at??

LOL! You've just opened a can of worms with that question.    But I sincerely appreciate for your questions about me....  

I've had several businesses in the past.  Im a very creative person and a keen eye for aesthetics.  I'm very good at design and development... which is essentially problem solving in my opinion.  I had a career working with and developing various consumer products for major brands...  and built businesses around this.   Im an out of the box thinker.. big dreamer ...and a go getter type!!  In fact, I was on Shark Tank a few years ago for a product I developed.  My claim of fame was that I walked away from $1M buyout (which is rare on that show and may not be the be the wisest thing I did in hindsight. Newbie mistake LOL!).  Nevertheless, my product is now on Walmart and other major retailers, and also licensed with Disney...  It just took a much longer path to get there. Of course as luck would have it, the consumer product industry has been suffering lately due to foreign trade (Damn Tariffs!!!) and this has severely impacted my other businesses.  I was taxed heavily for many years, hence I have bought several properties to offset throughout the years.  But now its the other way around, my W2/income is much much lower... my other businesses aren't as fruitful as they were due to things beyond my control.  I had to downsize my businesses just to stay afloat.  It's almost like starting all over.  I actually have more write-offs than I need. LOL!   

Consequently, my DTI has been impacted as well. I may not even qualify for any traditional/conventional loans according to my loan broker... especially since I already own 5 properties in high priced Los Angeles. So this year, Im looking to pivot and be more active towards RE related type of biz/investments (which I've always wanted to pursue and have a growing passion for).

My immediate goal is to find ways to generate cashflow to offset/replace my loss of income... and hopefully finding a quicker path to earlier retirement using/leveraging some of the equity I have now. But long term goal is definitely to buy and hold (maybe OOS). I recently heard a BP podcast about HELOCs and why its the best time to make use this equity built up... I forget the name of the guest, but it was someone that works with Robert Kiyosaki. So I pulled the trigger and got HELOCs a couple of months ago to make some use of it. I decided to use some of the funds for something short term and decided to flip with a partner. So, Im doing a ground-up build conversion project. It is an SFR to 2 Houses conversion to force equity and going to flip it (because my partner wants to exits and the numbers don't work for a rental without incurring a huge negative cashflow in Los Angeles). Im projecting to net 6fig on this project... hopefully. So far Im enjoying this flip project and the process of building from ground up... but Im also realizing that flipping may not be sustainable and is much riskier this late in the cycle. So now Im looking for other options / strategies to leverage my built-up equity... without losing my shirt.

Originally posted by @Christine Mwai :

Very interesting discussion. You could do a lot with $900k, but it depends on the market you are buying in as well as the terms of your HELOC.Your numbers and market should help you make wise decisions on this. What's the interest rate on the HELOC? What are the terms and conditions? It's hard to answer your Question without having the data to do so. Best wishes.

Yes, a lot I can do with $900k... but which is the wisest!?    Hence, why I posted this question to get some ideas. LOL! 

My current HELOCs are:  $600k at 5.6% (primary) ...and a $300K at 7.25%(investment property) 

@Alvin Uy I'll be the one to say it. It's beyond tough to effectively deploy capital now. I'd only invest in things which you both have a healthy margin of safety AND can add value through repairs. That margin of safety includes cash flow that more than covers your HELOC payments in case things go south. That margin of safety makes it so if real estate goes down 20% you could still sell the property and walk away relatively unscathed. Tough to do. If I were you I'd be trying to JV with guys in the midwest or southeast on multi family. I've got connections there PM me if interested.