HELOC or Home Equity Loan a Good Idea?

Question

Hello all!

At the point where we'd like to get a 4th property.  I have about @150k equity in my first house, and was thinking about taking out a HELOC or Home Equity Loan to put down on a new place (if the numbers produce positive cash flow, of course).  Still have to get that place appraised as well.

Any advice out there on if or how I should go about this?  In San Diego, so any new investments will be out of state probably, so there's that.  Been talking with @Memphis Invest about purchasing out there.

Thanks for any advice!

Joel Owens · Answer

The DTI on a 20,000 loan will not really affect me in my situation. My income is very, very high.

I guess it is all relative to what the amount is.

I am loving my local bank so far. They just sent me a business credit card if I want one. I don't really need it but they throw things at you when you have the money........... : )

0% Interest for the first 15 billing cycles. 9 percent fixed after that which isn't too bad.

Chris Clothier · Answer

@Nathaniel Donnelly

Really good info about going to your local bank there in San Diego or even with a traditional lender like Wells Fargo.  I have used Wells in the past in particular for HELOC loans, but have had more success lately with smaller, local banks and getting LOC's. As @Joel Owens noted, you can get some great terms with smaller banks looking to build stronger and longer relationships and deposit accounts.

Thanks for the good words @Derrick Craig.  I keep hearing great things about you guys as well and have even given your number to a client of mine who made a major mistake buying Memphis properties from a company in Utah and needs help with management.  As you noted we work in different parts of the city and this one in particular is in an area that I do not manage.  Hopefully we can meet up soon and talk shop.

Best of luck Nathaniel and be sure to reach out if I can personally do anything for you.

Joel Owens · Answer

My bank told me the other day they were running a 12 month special.

They will lend for a Heloc at up to 80% of value. It's a local community bank with about 100 locations in multiple counties in GA. I do not have to pay for an appraisal. They send a drive by for an exterior BPO for a quick value and that is it.

The Heloc for 12 months is 1.75% so on 20,000 for instance I would pay 20 something bucks a month. If I went past 12 months they said it would go to 3% or around right at 40 a month.

What is everyone else seeing for rate?? It's funny when you don't need the money people throw a lot of it at you! lol

Derrick Craig · Answer

@Nathaniel Donnelly

LOL!! No I have not worked with Memphis Invest, although I have heard great things about them, also Chris am I have exchanged emails on occasions here on BP. I am not sure if he and I are in competition b/c they are sooooo much bigger than I am and some of my turnkey properties are in areas they will not invest in. Which is fine because Memphis is a big enough city for everyone to invest in where they feel comfortable and feel they will achieve a profit in return.

Thanks for Checking out the video

Nathaniel Donnelly · Answer

Haha, just realized you may be their competition.  Let me watch your video when I get home.  Interesting.

Nathaniel Donnelly · Answer

Excellent!  Thanks Bruce!  Calling today!

Bruce May · Answer

Try Cabrillo Credit Union. I'm the chairman of the board and we do HELOC's.

Nathaniel Donnelly · Answer

So does anyone have a recommendation for a small bank in San Diego?

Christopher Covell · Answer

Definitely shop around to find the best fit as the pay down rate and assumptions will greatly affect your calculated DTI. I found credit unions to be a good source with a variety of options. Most will lend up to 80% LTV, but I've seen options vary from 70% up to 95%.

As far as the pay down goes, as @Justin R.noted some banks might charge 1% of your remaining balance each month. This means you have a fairly high loan constant (with the amortization rate a little under 10-Yrs based on the initial payment). Granted you're paying it down quickly initially so your payment each month goes down. If you're trying to keep your payments low this probably isn't the way to go, especially if you're near the line for DTI.

Others might offer interest-only (with a balloon payment) -- offered at a higher interest rate, of course.

What I settled on is amortized over 20-yr at the PRIME rate with 80% LTV.

Good luck with your search! If you think of it after, reply back with what you settle on -- it's always good to see what other investors are finding (and learn how the story ends!).

Nathaniel Donnelly · Answer

Great info everyone!  I really appreciate the feedback.  I have a good idea of how I'm going to go about this now.  Thanks!

HELOC or Home Equity Loan a Good Idea?

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