HELOC Question: Bank vs. Credit Union vs. Lender

7 Replies

Hi BiggerPockets Community!

I just purchased my first investment property. It's a large 3 bedroom, 2 bath house that's zoned multifamily so it can be turned into a duplex (goals)!

My partner and I are planning to add a fourth bedroom in the basement to increase the value of the house and have the basement converted into a studio apartment. The property appraised for $75,865 more than we purchased it for (woohoo)!

We want to take out a HELOC to do the remodeling and repairs to the house. I went to the bank I bank with (Chase) to get a quote on their HELOC program. I plan on reaching out to a local credit union and a mortgage lender.

My question is, in your experience (as a savvy and seasoned buy and hold investor), which route has been the best and easiest overall in terms of rates, refinancing after the remodel, and getting the money? Is there a better way to pay for the rehabbing and remodeling? (Hard money loan, line of credit, etc)? 

@Laurie Horning , first things first. Have you confirmed with the town that you can legally put a 4th bedroom and/or studio in the basement? Even if it's zoned MFR, there may be restrictions and making a basement legal isn't as simple as throwing up some walls. Egress is a huge issue. Plus adding the plumbing and splitting out the utilities will be expensive. Are you very, very sure this makes financial sense?

Next, how much equity do you have and how much value will the additional livable space bring? Remember, just because you add another unit, that won't necessarily increase the property's value substantially. You'll have to look at comps to see what's realistic. It doesn't make sense to spend $50k on a reno that only increases value by $25k. This will dictate your funding options going forward.

Funding: a HELOC may be a good strategy, as long as you can pay it down relatively quickly. These are best used for short-term debt. They are low cost to get, flexible, and once you pay them back, the funds are available again (yay!). The down side is higher rates and a (typical) 20-year payback period.

I doubt hard money is the way to go. It's very expensive and highly unlikely that you'll increase the value enough to justify the high costs.

@Jaysen Medhurst Thanks for bringing that perspective! 

I should have explained my situation more in depth, here are all the facts and numbers. 

Purchase price: $302,135

Appraised for: $378,000

Comps for 3 bedroom, 2 bath homes in a .5 mile radius: $465,000-$685,000

Comps for a 4 bedroom, 2 bath home with similar sqft in a .5 mile radius: $500,000-$755,000

Located in the City of Portland, the city is very focused on finding solutions for the lack of housing and places for people to live. Many basements are converted into ADUs (Accessory Dwelling Units) and rented out as studios. Separating the meter is something I will be looking into.

We plan on renovating the basement since it needs a good remodel to be able to rent it out at top value and we're hoping it will appraise more than $378,000 at that point since there will be more upgrades throughout the house (we're updating the electrical, plumbing, reinforcing the basement walls, adding an egress window, adding support to the roof, updating the small kitchenette, bathroom, and cosmetics of basement). 

Question about funding:

I've been talking to several mortgage lenders and spoke with someone at a local credit union. Two lenders from big banks have said I need to have owned the house for 6 months before getting a HELOC. The lender from the credit union said that wasn't the case and they could get me into a HELOC in 3 weeks OR I could do a cash out refi (they have a special right now where they're waving closing costs until the end of the month).

Do you (or does anyone else) have experience in a cash-out refi or HELOC and what the preferred option is based on the outcome? My goal is to keep my monthly mortgage down while being able to spend no more than $50,000 on the basement renovation to maximize cash flow.

Hi @Laurie Horning so when you say “investment property you are saying you won’t occupy the property. If that is the case then my experience with the big banks for no owner heloc’s has been bad. Had a good experience with First Tech-fast and simple with a desktop appraisal. While BA might advertise a little better rate the brain damage is unbelievable!

@Jeff S. Thank you for letting me know! So my partner and I will be occupying it while renting out the other rooms. Yes, I can see why big banks would cause headaches, the lender I spoke with was at Chase was not helpful. 

I will look into First Tech! I just started talking to a HELOC specialist at Advantis Credit Union. Is there someone you worked with at First Tech in Portland that you would recommend? Thanks for the tip!

@Laurie Horning the First Tech HELOC was on a rental in NE Portland but the branch is in Beaverton where I live. I don't recall the underwriter but a couple of calls and it was done. Application was online if I recall correctly.

My home I have both a fixed rate 1st from US Bank which was giving no fee loans at the time and a HELOC from Oregonians Credit Union.

The downside to credit union HELOC's is the $50 annual fee.

@Doug Bielecki During the home inspection, I called specialists to provide quotes on how much it would cost my partner and I to do the repairs and since the sellers were selling the property in as-is condition (meaning they were not going to do any repairs or pay to fix anything, we had to buy the house in the condition it was currently in), we negotiated for a lower price. 

I saw an opportunity with this property since the other 2 offers the sellers had previously accepted had backed out. Seemed like the sellers didn't want to hassle with selling the house anymore. The sellers never requested a copy of the appraisal so they didn't know they were leaving anything on the table. 

Hope that's all clear, feel free to ask any other questions!