Using HELCO from portfolio to fund new Tri-plex renovations
Hello,
I'm buying my third Multi-family and will be closing this July 2022. All my properties (3) have been funded by VA Home loan. This will be my first time trying to use my equity to fund renovations. My goal is to take out a HELCO from my first rental property which has about 170k in equity. I want to use about 20k to fund the renovation on my new property.
My questions:
1) After I finish renovation in about 6-12m do I complete a cashout refinance on the new property and take the profit to pay back my HELCO?
2) I'm closing on the triplex at 650k. How much do i need the property to appraise for to be able to pay back my HELCO?
There's no need to do a HELOC on the first rental property for renovations. Make the bank pay for renovations. Tell the bank you want a 12 month construction loan on the new property and include both the purchase price, as well as renovation costs. Usually you can get interest only for first 12 months during renovations. Then after 12 months, the bank will convert your construction loan into long term financing, whereby you pay both principal and interest. They will probably do a new appraisal after the renovations. By then, you have hopefully rented out units and/or raised rents to reflect your renovations and created what's called "forced appreciation". Don't ever offer your cash or equity to the bank, always ask to borrow it first. The only risk I would consider here is the possibility of rising interest rates 12 months from now.
WOW, thank you for taking the time and steering me on the correct path. Thank you sincerely.
Quote from @Peter Albanese:
There's no need to do a HELOC on the first rental property for renovations. Make the bank pay for renovations. Tell the bank you want a 12 month construction loan on the new property and include both the purchase price, as well as renovation costs. Usually you can get interest only for first 12 months during renovations. Then after 12 months, the bank will convert your construction loan into long term financing, whereby you pay both principal and interest. They will probably do a new appraisal after the renovations. By then, you have hopefully rented out units and/or raised rents to reflect your renovations and created what's called "forced appreciation". Don't ever offer your cash or equity to the bank, always ask to borrow it first. The only risk I would consider here is the possibility of rising interest rates 12 months from now.
This property is about to close on the 7th using a VA home loan. Is that something I can change now or is it to late?
Hi @Matthew Addison, below are my answers.
1. You can do a cash-out refinance in 6 months to pay off your HELOC.
2. You can do a cash-out refinance for 100% of the value for VA loans so you would need it to appraise for at least 670k. However, the rate gets significantly better below 90% LTV. At that point, you would need it to appraise for at least $745k.
Also, it might be tough to find a place that does HELOCs on investment properties. I am not aware of any so please let me know if you find one.
Hope this helps! Let me know if I can be of any assistance.
Hey @Andrew Garcia,
Thanks for the Numbers, that helps! Any tips on what i should focus on in term of renovations to help improve my appraisal?
BECU & ACU both do HELOCs on Investment Properties.
@Andrew Garcia someone on another forum put THIS LIST TOGETHER with a comprehensive list of lenders/banks that offer investment property HELOCs. The list is the best I've seen, but it is also not up to date 100%. For example Spring EQ had an investor HELOC for like 2 months and then took it off. Spring EQ does offer HE loans up to 90% LTV however. Some investors may be interested in that. The list is also a lot of banks that only operate in certain states.
@Matthew Addison you can also utilize a VA renovation loan - I did one myself and loved it. You will need to find a broker up there in Washington that can help you with the renovation loan. There are some steps you need to take, as well as the contractors, but you can wrap the renovations into the loan without additional fees for financing. You can see my post about it HERE if you'd like a general overview. Good luck!
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Quote from @Erik Browning:
@Andrew Garcia someone on another forum put THIS LIST TOGETHER with a comprehensive list of lenders/banks that offer investment property HELOCs. The list is the best I've seen, but it is also not up to date 100%. For example Spring EQ had an investor HELOC for like 2 months and then took it off. Spring EQ does offer HE loans up to 90% LTV however. Some investors may be interested in that. The list is also a lot of banks that only operate in certain states.
@Matthew Addison you can also utilize a VA renovation loan - I did one myself and loved it. You will need to find a broker up there in Washington that can help you with the renovation loan. There are some steps you need to take, as well as the contractors, but you can wrap the renovations into the loan without additional fees for financing. You can see my post about it HERE if you'd like a general overview. Good luck!
@Erik Browning thank you!
Quote from @Erik Browning:
@Andrew Garcia someone on another forum put THIS LIST TOGETHER with a comprehensive list of lenders/banks that offer investment property HELOCs. The list is the best I've seen, but it is also not up to date 100%. For example Spring EQ had an investor HELOC for like 2 months and then took it off. Spring EQ does offer HE loans up to 90% LTV however. Some investors may be interested in that. The list is also a lot of banks that only operate in certain states.
@Matthew Addison you can also utilize a VA renovation loan - I did one myself and loved it. You will need to find a broker up there in Washington that can help you with the renovation loan. There are some steps you need to take, as well as the contractors, but you can wrap the renovations into the loan without additional fees for financing. You can see my post about it HERE if you'd like a general overview. Good luck!
You the man! thank you.