HELOC or cash for primary residence/investment duplex

Austin, Texas
General Real Estate Investing
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HELOC or cash for primary residence/investment duplex

Samuel Metcalf
Member since 2023 · 8 posts · 2 votes

I'm all over the place on this one with a mix and match conundrum.

I've got a duplex that's been awesome for me. It's got a $200K mortgage on it with a value of... at least $325K. Best case $400K. I've been eyeing up buying a second investment property: my partner's parents' place. They've been great owners, keeping the upkeep strong, and lately putting about $40K into it to ready it for sale. My guess is they'll ask about $250K. I believe I'll need about $50K for closing, right? With 20% being the common minimum expected if it's purchased for an investment?

Then there's our primary residence. We bought a new build last year and it came with a lot to be desired on the landscaping end. We're ramping up efforts to improve that this spring/summer. I'm just guessing here... maybe $40-60K in improvements?

We have $50K in cash. Another $50K in savings that we'd like to leave untouched. 

Is there an obvious answer for what's the better move to finance either the landscaping and home improvement projects? Cash should go to the purchase? The landscaping? Vice versa the HELOC? Does it matter? Appreciate any and all opinion.

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Clint Jusino
Dallas · Member since 2020 · 154 posts · 95 votes
2y
Quote from @Samuel Metcalf:
Quote from @Clint Jusino:
Hello Samuel. Have you ever thought of using a creative financing method called "Gift of Equity"? I did that to purchase my parents house which is my 1st rental and I paid 0 of of pocket. YT it and it's a really creative way to purchase your mother/father in laws property. 

 Interesting, sir! I did a little digging on that. I'm not sure the viability here, it assumes they'd be willing to take less than market value and enough less where it covers 20% down? 

Yeah sir. You can make it your primary and save on the down payment and closing cost. You don't have to bring anything to the table. I can share closing docs and anything else via email. Very easy to do and it was a creative idea I found from YT university.
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  • Clint Jusino
    Dallas · Member since 2020 · 154 posts · 95 votes
    2y
    Quote from @Samuel Metcalf:

    I'm all over the place on this one with a mix and match conundrum.

    I've got a duplex that's been awesome for me. It's got a $200K mortgage on it with a value of... at least $325K. Best case $400K. I've been eyeing up buying a second investment property: my partner's parents' place. They've been great owners, keeping the upkeep strong, and lately putting about $40K into it to ready it for sale. My guess is they'll ask about $250K. I believe I'll need about $50K for closing, right? With 20% being the common minimum expected if it's purchased for an investment?

    Then there's our primary residence. We bought a new build last year and it came with a lot to be desired on the landscaping end. We're ramping up efforts to improve that this spring/summer. I'm just guessing here... maybe $40-60K in improvements?

    We have $50K in cash. Another $50K in savings that we'd like to leave untouched. 

    Is there an obvious answer for what's the better move to finance either the landscaping and home improvement projects? Cash should go to the purchase? The landscaping? Vice versa the HELOC? Does it matter? Appreciate any and all opinion.

    Hello Samuel. Have you ever thought of using a creative financing method called "Gift of Equity"? I did that to purchase my parents house which is my 1st rental and I paid 0 of of pocket. YT it and it's a really creative way to purchase your mother/father in laws property. 
    0Reply
  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    2y

    I don't love the numbers for buying again, but if it's family you can work something out that works for everyone. But, you should keep in mind that the family may want to get market value and it defeats the purpose of buying from family to pay market value for it. I love the idea by @Clint Jusino to do seller financing with the parents, but it depends where they are going and if they need a bigger downpayment to get something else.

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  • Samuel Metcalf
    OP
    Member since 2023 · 8 posts · 2 votes
    2y
    Quote from @Clint Jusino:
    Hello Samuel. Have you ever thought of using a creative financing method called "Gift of Equity"? I did that to purchase my parents house which is my 1st rental and I paid 0 of of pocket. YT it and it's a really creative way to purchase your mother/father in laws property. 

     Interesting, sir! I did a little digging on that. I'm not sure the viability here, it assumes they'd be willing to take less than market value and enough less where it covers 20% down? 

    0Reply
  • Samuel Metcalf
    OP
    Member since 2023 · 8 posts · 2 votes
    2y
    Quote from @Jonathan Greene:

    I don't love the numbers for buying again, but if it's family you can work something out that works for everyone. But, you should keep in mind that the family may want to get market value and it defeats the purpose of buying from family to pay market value for it. I love the idea by @Clint Jusino to do seller financing with the parents, but it depends where they are going and if they need a bigger downpayment to get something else.


    Thanks for taking the time to respond. Which numbers give you pause? I can look into Gift of Equity. Assuming that doesn't work out at all, does cash or HELOC work "better" for one of these pursuits?

    0Reply
  • Clint Jusino
    Dallas · Member since 2020 · 154 posts · 95 votes
    2y
    Quote from @Samuel Metcalf:
    Quote from @Clint Jusino:
    Hello Samuel. Have you ever thought of using a creative financing method called "Gift of Equity"? I did that to purchase my parents house which is my 1st rental and I paid 0 of of pocket. YT it and it's a really creative way to purchase your mother/father in laws property. 

     Interesting, sir! I did a little digging on that. I'm not sure the viability here, it assumes they'd be willing to take less than market value and enough less where it covers 20% down? 

    Yeah sir. You can make it your primary and save on the down payment and closing cost. You don't have to bring anything to the table. I can share closing docs and anything else via email. Very easy to do and it was a creative idea I found from YT university.
    1Reply
  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    2y

    @Samuel Metcalf- thanks 1) I would recomend getting a HELOC in place on your primary residence duplex for as much as possible...this should be available for free or a low cost and the rate will be variable in the 8-11% range ...prime rate + margin of 1-3% ) ...the min payment is in interest only payment on outstanding balance 2) use the heloc for the remodeling costs ...pay it down as agressively as you can 3) on the purchase of the investmenet 1 unit - you are allowed to put as little as 15% of the price for your down payment ...the pricing you get for the loan will improve as your down payment grows so you might look at 75% / 80% and 85% ltv options

    0Reply
  • Samuel Metcalf
    OP
    Member since 2023 · 8 posts · 2 votes
    2y
    Quote from @Dave Skow:

    @Samuel Metcalf- thanks 1) I would recomend getting a HELOC in place on your primary residence duplex for as much as possible...this should be available for free or a low cost and the rate will be variable in the 8-11% range ...prime rate + margin of 1-3% ) ...the min payment is in interest only payment on outstanding balance 2) use the heloc for the remodeling costs ...pay it down as agressively as you can 3) on the purchase of the investmenet 1 unit - you are allowed to put as little as 15% of the price for your down payment ...the pricing you get for the loan will improve as your down payment grows so you might look at 75% / 80% and 85% ltv options


    Thanks Dave. Just to be ultra clear, did you mean pull the HELOC out from the duplex, or from the primary residence? Two separate things. The duplex I have, I'm guessing, 100-150K equity in. My primary about 50K (just acquired last year).

    Secondly, in your experience, what do you typically see for repayment length? 10, 15, 20, 30 years for HELOCs?

    0Reply
  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    2y
    Quote from @Samuel Metcalf:
    Quote from @Dave Skow:

    @Samuel Metcalf- thanks 1) I would recomend getting a HELOC in place on your primary residence duplex for as much as possible...this should be available for free or a low cost and the rate will be variable in the 8-11% range ...prime rate + margin of 1-3% ) ...the min payment is in interest only payment on outstanding balance 2) use the heloc for the remodeling costs ...pay it down as agressively as you can 3) on the purchase of the investmenet 1 unit - you are allowed to put as little as 15% of the price for your down payment ...the pricing you get for the loan will improve as your down payment grows so you might look at 75% / 80% and 85% ltv options


    Thanks Dave. Just to be ultra clear, did you mean pull the HELOC out from the duplex, or from the primary residence? Two separate things. The duplex I have, I'm guessing, 100-150K equity in. My primary about 50K (just acquired last year).

    Secondly, in your experience, what do you typically see for repayment length? 10, 15, 20, 30 years for HELOCs?

     @Samuel Metcalf- sorry ...getting heloc on the rental duplex will be hard / impossible to obtain ....if you can get one - it would be a great option to use for the remodel / landscape ....if you have 50K equity in your primary -you likely dont have ample equity position to get a HELOC on it as the max comboned loan to value for helc lenders is 85% ( maybe 90% ) ...I would try getting helocs on both to see whats possible ...if no heloc is possible - use the cash on hand for the purchase down payment / closing costs / loan fee/ prepaids and then use future accumulated savings for landscaping

    0Reply
  • Samuel Metcalf
    OP
    Member since 2023 · 8 posts · 2 votes
    2y
    Oh dang! Why might it be hard to obtain a HELOC on the rental property? I thought that was the whole point of gaining considerable equity in these properties, to leverage them with a HELOC and then acquire more property and/or rehab existing ones?
    1Reply
  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    2y

    @Samuel Metcalf- Most HELOC lenders only lend on primary homes ...the few lenders that do HELOCS on rentals will likely have a low CLTV ( and a high margin over prime which will lead to a rate in double digits ) .. check with the banks / credit union located close to the property and also maybe there will be some feedback on this thread pointing towards lendign sources that might work

    1Reply
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