How do I leverage against my current property?
Hi,
I'm looking to leverage my first property to purchase a second property. I understand there are specific methods like cash out refinancing, HELOCS, and equity loans.
If I take those out like a HELOC how do I actually pay that loan back as I'll still have a monthly payment for that loan? Any advice would be greatly appreciated. Thank you!
I personally wouldn't do this with the current state of the market unless you are doing value-add. If you buy Core right now you might a get a yield similar to the interest rate you would pay on a heloc. You would be increasing the amount of work you have to do for the exact same yield.
Quote from @Daniel Hwang:If your doing anything close to this tye property better be a 100% home run .
Hi,
I'm looking to leverage my first property to purchase a second property. I understand there are specific methods like cash out refinancing, HELOCS, and equity loans.
If I take those out like a HELOC how do I actually pay that loan back as I'll still have a monthly payment for that loan? Any advice would be greatly appreciated. Thank you!
Otherwise, we didn't do a portfolio loan until we had 5 houses and supporting tax returns and did everything cash up until then.
i wouldn't do it until you have some track record before jumping into leverage and a heloc is made to use and pay off quickly. Long terming it, especially in this economy, isn't wise
Hi Daniel,
Great question. The first thing to ask is your exit strategy on the second property - are you simply buying a rental or doing value-add? For instance, if you expect to get the money back because you found a home-run BRRRR deal, this would make perfect sense.
It also depends if your first property is a primary residence. If so, you'd need a stronger reason/exit strategy to pay back the loan.
Quote from @Daniel Hwang:Hey Daniel! It depends on a bunch of factors. How are the debt terms that you have on your 1st property? Is it fixed? Did you get a sub 3% rate that is gorgeous from 3 years ago? Is it meh rate wise? How much equity is in your current property? Are you looking to househack your next property? Are you currently an owner occupant in your 1st property?
Hi,
I'm looking to leverage my first property to purchase a second property. I understand there are specific methods like cash out refinancing, HELOCS, and equity loans.
If I take those out like a HELOC how do I actually pay that loan back as I'll still have a monthly payment for that loan? Any advice would be greatly appreciated. Thank you!
The split in the road that I personally crossed a few years ago was whether to do a HELOC or a cash out refi on my first building. Both have their pros and cons, but the debt I have on the building is 2.6% fixed rate FHA. It cash flows nicely, and has a pretty fair amount of equity in it. I was in a position where I needed to lever it somehow while I was still an owner occupant (I since have moved out of that building and rent it out as a rental), and ended up taking a heloc. I got the highest LTV because I was an owner occupant even though the rate came out to 9.25% at that time….
Like everyone mentions below, it is difficult to make it worth it in todays environment to beat the heloc rate, but it’s access to capital at the ready for you to use in the event that you find something crazy. It acts as an emergency fund In my opinion while it’s not deployed anywhere, and god for bid you have a large capex item go that you might not be 100% prepared for and you can resolve it immediately. You won’t have a payment if you don’t use it, just like a credit card. I personally recommend that if you have good debt on the first one to take a heloc, and if your debt is meh to potentially look into cashout refi’ing on the 1st building and keeping your eyes open for the next opportunity :) Analyze both accordingly and talk to your lender as well as other investors to get their thoughts!
@Daniel Hwang Also please note that a lender will assume you've used the entirety of the HELOC if you are trying to purchase another home when looking at your DTI even if you haven't touched it
You can always do a HELOC on you primary up to 90% LTV vs an investment property only up to 75% -80% where rates are also slightly steeper.