HELOC for downpayment on investment property

Multi-Family and Apartment Investing
7yFollow

HELOC for downpayment on investment property

Bob M.
Watertown, MA · Member since 2016 · 5 posts · 2 votes

Hello everyone,

This is my 2nd time posting on the forums, with another question regarding applying for a HELOC on my primary residence for the down payment on an multi-family investment property.

As I'm getting to the final steps of securing the HELOC, is there any reason to not have the line for as much as possible? In other words, if an initial approval came through for (hypothetical numbers) $150K, then after the appraisal of the primary residence, approval was granted for up to $250K, is there any reason to not go with the larger dollar amount?

If I understand correctly this would allow greater buying power (being able to put down a higher down payment amount) if necessary, and since the payments are only made on what is actually "used" there would be no downside.  Obviously I would still exercise caution with how much of the total allowable I borrowed, but I don't want to limit myself with a lesser available amount. 


Any feedback would be great.  Thanks, Bob 

1Reply
49 views

Most Popular Reply

Brian Ellis
Rental Property Investor · South shore, MA · Member since 2017 · 1k+ posts · 1k+ votes
7y

What is your initial game plan with the investment property? Today it may seem like it makes sense to pull more money out, but what about a year from now? Do you plan to use this short term?

Its a good vehicle if used correctly. Me, I thought I was using mine correctly doing the BRRRR method, but after a few talks with lenders I realized I wasn't able to pull even half that money back with a refinance since I had used a conventional loan. Now im stuck with it until I can pay it off, which will be a while.

1Reply
See this reply in the discussion

10 Replies

Jump to latestLatest
  • Scott W.
    Real Estate Investor · chicago, IL · Member since 2012 · 1k+ posts · 231 votes
    7y

    HELOC is the cheapest $ you will ever find. even if you aren't using it for investing purposes, do it anyways. great way to increase your savings. you wanna have a heloc when you can, not when you can't (ie, when don't qualify or the banks close them out like during the great recession).

    1Reply
  • Brian Ellis
    Rental Property Investor · South shore, MA · Member since 2017 · 1k+ posts · 1k+ votes
    7y

    What is your initial game plan with the investment property? Today it may seem like it makes sense to pull more money out, but what about a year from now? Do you plan to use this short term?

    Its a good vehicle if used correctly. Me, I thought I was using mine correctly doing the BRRRR method, but after a few talks with lenders I realized I wasn't able to pull even half that money back with a refinance since I had used a conventional loan. Now im stuck with it until I can pay it off, which will be a while.

    1Reply
  • Bob M.
    OP
    Watertown, MA · Member since 2016 · 5 posts · 2 votes
    7y

    Scott & Brian, thanks for responding.

    Brian, ultimately I would like to generate good cash flow and hold it over the long term, but was also thinking BRRRR. Could you elaborate some more on your situation? How long was it before you attempted a refi on the investment property? Assuming it's a multi-family does it cash flow monthly for you, and are you planning to keep the property as a long term investment?

    1Reply
  • Ed Matson
    Investor · Stratford, CT · Member since 2015 · 258 posts · 230 votes
    7y

    @Bob M. - To answer your original question, there is no reason not to get as big of a credit line as possible.  You are correct, you will only pay interest on what you have drawn from the line.

    1Reply
  • Bob M.
    OP
    Watertown, MA · Member since 2016 · 5 posts · 2 votes
    7y

    @ Ed Matson - Thank you Ed, that's exactly what I needed to know.  

    0Reply
  • Corby GoadeBusiness Member
    Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
    7y

    Yes, there is a possible down side. For the record- this is the exact same method I use to invest, so I thing it's a great way to build a portfolio. That said, when investing with a HELOC, make sure you have an exit strategy that includes cashing out in less than a year- HELOCS are variable rates and who knows where those rates will be in a year. If you are banking on cash flow, variable rates can not only kill your cash flow, but they could potentially put you in a position where you have to short sell or even be foreclosed upon.

    My two cents- buy a property that you can force around 25% equity in less than a year, which isn't impossible with some lipstick and landscaping. If you do that, you can either sell or do a cash out refi and pay off the majority of your HELOC and be close to 100% financed.

    Good luck!

    0Reply
  • Oleg Shalumov
    Rental Property Investor · Teaneck, NJ · Member since 2016 · 567 posts · 291 votes
    7y

    @Bob M. the only possible downturn I could see that you will use most/all of the money on Heloc, the price of property may go down and heloc would be reduced or closed. You will be asked to pay the balance. 

    Normally banks gives heloc very conservatively but wanted to make sure you are aware of possible, even if it is unlikely, case. 

    0Reply
  • Bob M.
    OP
    Watertown, MA · Member since 2016 · 5 posts · 2 votes
    7y

    @Corby Goade - Thank you Corby for the great feedback..  The variable rate does concern me, and ideally I'd like to be able to refinance the property as soon as possible.  I'm hoping to find something in need of sweat equity so, as you say I can "force the equity" as quickly as possible after purchase.  

    In your experience, are there any restrictions on how quickly you can refi on an investment property in this type of scenario?  I've read in some places about a property needing to be "seasoned," but maybe that was in regards to a lender assessing whether or not to allow someone leverage that property for another loan.

    @Oleg Shalumov- Oleg, thank you also.  Yes, I plan to be as conservative as possible in what I actually borrow, but figured having the availability for more funds wouldn't be a bad thing.

    0Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    7y

    A friend told me he was talked into getting a HELOC to help the banker earn his browning points. Often it is max you apply will get more uses. In his case, $1M.

    0Reply
  • Corby GoadeBusiness Member
    Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
    7y

    Hi @Bob M.- for conventional lenders you need to wait the six months for seasoning- which, generally should be fine. There is the delayed financing exception- your purchase needs to be all cash and it's very difficult to pull most of your investment out. My personal feeling is that waiting the six months generally gives you time to fix the place up, get a tenant in there and, hopefully, the place has appreciated a bit in that six months, creating a bit more room for your cash out refi. 

    Get with a lender you know and trust and you can start putting the pieces together and prepare yourself and your property for the refi as soon as you are ready. 

    Good luck!

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free