Hi everyone, I am new to this forum. I am ready to start my real estate investment journey and need your help and expertise. So my question is what should I do with the equity in my primary home to invest in multiple properties. I live in LA county California. I bought my primary home for 1.225 mil with a 15 year mortgage at 3% interest. I think my home might be worth 1.4-1.5 mil now. I have a balance of $260K left on the mortgage with 6 years left. What makes sense for me? A Heloc, home equity loan, cash out refi, mortgage loan with recast? Any other options that I haven't listed? I also wanted my investment properties to be a 15 year mortgage just in case that makes any difference on what I should do. I want to buy and hold properties for cash flow, long term and short term rentals. Thank you in advance for your help.
@Julianne Paragas you are on the right track. If you are looking to get a mortgage on the investments a HELOC might be a better option as you only have to pay interest only, and when you refi the properties you would pay off your HELOC, and then have the credit line freed back up.
Say it takes you 3 months to find a property you have the cash sitting there and doing nothing while you are making payment. With a HELOC you just don't draw on it till you need it. The rates on the HELOC will probably be higher, but since you would be refi the investments it would be paid off as quickly as you refi them.
The only difference between a 15,20 and 30-year note on the investment properties will be the size of the payment and how long it takes to pay them off, thus affecting your cash flow. All of that is just a matter of preference and what fits your goals and plan the best.
I would also like to add, what type of investment property do you want?
Duplex , Single family , turn key or remodel?
That also plays apart as well. Remodels or restore needed homes tend to go so severely less than market value ( sometimes). This will free up some of your money as well being you wouldn’t be paying full market price for a home & depending on the work needed & wanted you might still break away from extra cost .
I second mr.Davidson’s thought! My financial advisor told me I need to know what I want first before I decide where to pull the money to spend.
I ended up refinancing for a cash out.
Restoration needing *****
Adding to the last part of what I said because it didn’t post.
I cashed out w/ my refinance at the minimum amount possible & worked + used half of my saved money so my refinance wouldn’t affect my cash flow from the rental property.
@Julianne Paragas I would go with the HELOC. You already have a good rate on your primary first mortgage. So I would just go with a HELOC to get some cash to invest.
The difference in rate between a cash out refinance and a HELOC was just not worth me doing a cash out refinance, so I went with the HELOC. My HELOC has been a God send. I've used it to purchase properties and refinanced my cash back out of them, but I've also used it for personal business purposes as well. There were no closing costs which was also a huge win. I've also liked that when I have not been using the funds I don't of any interest whereas in a cash out refinance you've just refinanced your entire mortgage and are locked in on paying your interest until the mortgage is paid off. Of course I've done cash outs as well, but as far as my primary residence goes I definitely have been happier with a HELOC.
I'm happy to hear that you're happy with your HELOC. To follow up on my question. Let's say I get a HELOC to use as a down payment on an investment property and then wait at least 6 months (or when the investment property has enough equity)so that I can do a cash out refi and use that money to pay back the HELOC. Is that correct? Also do you try to buy a property where you make sure it cash flows to not only cover the mortgage and expenses from the rental but also to cover the HELOC payments? Any tips on that? Do you use any of your own money to pay back the HELOC?
Hi, thank you for your reply. Do you have any tips on how to pay back the HELOC? I'm looking for an investment property that cash flows not only to cover the mortgage and expenses but also to pay the HELOC. I'm not sure how realistic this is? I will probably have to use some of my money to pay off the HELOC since I would want to pay it off ASAP. I'm thinking once I have enough equity in the investment property I can do a cash out refi to pay a part of the HELOC as well.
@Julianne Paragas The way it works is you get a HELOC for say $300,000. Then you find a house that you can buy with your HELOC funds that might cost you $100,000 but after it's fixed up it should be worth more like $160,000 but it needs $20-$30,000 in repairs. Then you rehab the home and you get a tenant in there. Then you get a loan on the property for 75% of the new value of the home. This process might take six months. So you will pay interest on your HELOC during the six months that you're using this money. But that interest is relatively low compared to hard money costs. You should be able to pay off $120,000 or so towards the $130,000 that you borrowed to get buy and rehab the property when you refinance. So you should only owe about $10,000 more on the HELOC (of course there are closing costs involved which will increase that amount but I'm just trying to be simplistic in my response). Then with the cash flow from the property should be able to pay the new mortgage for the property and have enough to pay the interest on the HELOC and possibly even some left over to still cash flow. That's roughly how it works.
What he said above...not much more else to say. Good luck!