I currently have a duplex that I paid for in cash through a HELOC, approximately 70K of the 165K available in total. My net income per month is approximately $800 after all bills paid and future maintenance repair money is put aside. The HELOC is a variable loan and currently at 4.5%, I called my local bank that I do business with and the refi would be 75% LTV, 20 year max at 5% (after I have owned it for 6 months which is next month), closing costs would be approximately $3200-3500. Do I refi? I would have to do a little research to see what the bank would access the house at but I think they would around $80k. Do I keep the HELOC going until I find another property to buy with the additional money and then refi to free up some of the money? What do you think is my best strategy going forward biggerpockets?
Stuck in the same situation thanks for posting
The HELOC is on the duplex now, and you want to refi the duplex to better terms?
if so, then yes. You're trading one debt for another with better terms and you're hedging against future interest rate risk.
The details here are important. What units have what equity, what loans are where, and how you want to deploy the cash all make a big difference in the answer here.
If your wanting to scale then at some point your going to re-fi. The banks like to see a revolving line as well, not just milk the HELOC b/c it's good at the moment and better interest rate than long term fin.
The terms you presented are not bad and I would re-fi, pull out the equity and continue to scale (if that's your goal). But again I'm looking to scale, you may not be. The opportunity cost may be more than you can measure. I look for deals that need work and a cash offer quick closing helps get them. So I like to have funds available to not miss other opportunities.
I have a HELOC against my house which 80% is 165K. I used 70k of the 165k available to pay for the duplex. I have one last little project with the duplex this weekend and I don't anticipate any major costs in the near future especially with a new metal roof installed before I bought it. I will be looking to buy another rental this year with the remaining 95K in the HELOC and would like to slowly continue to scale. I have a 6 figure job and plenty of other funds to pay the HELOC if I got into a jam with vacancies. @Alexander Felice
I would leave the HELOC open on your primary house and mortgage the newly purchased unit. Use all the funds to buy more deals.
Refi, pay the HELOC off, keep it open....rinse and repeat....
What is your tolerance for risk?
The Heloc can be called at any time (particularly in a down market).
If you can't get financing at that time for your investment properties, you could lose your primary residence.
On the other hand, while the market is good, the LoC lets you move quickly and only incur debt service when you use it.
I am currently in a similar situation. I have a HELOC on my primary.
I plan to refi buy and holds that I purchase with the HELOC or if I use a hardmoney lender in the future. Think about the benefit of a fixed interest on your duplex with a refi vs possible heloc interest increases and the tenants are paying down the mortgage. Takes out the risk on your primary. Takes out the risk of increasing interest. Also, refinancing will give you access to that line of credit when needed for future deals but again, I'm planning to rinse and repeat the refi option as I want to use other people'e money and eventually limit the risk on my primary residence.
Hi Percy - Can you please elaborate on HELOCs being called in a down market? Wasn't aware that HELOCs were callable at any point in time (excluding any deviations from the original agreement with a lendor).