Home paid in full, HELOC?

Question

My question is a home being fully paid off. It was originally a custom built home. Recently mortgage was paid in full and I hold full equity. never have I got a appraisal done. This is my first step to get a home appraisal to be issued a paper saying the amount the home is valued on the market. My second major question is how do I use the equity in the home to buy potential 1 or more houses. Should I cash out refinance, HELOC? I’m wondering after I get a appraisal do I take the letter to local banks or lenders? Contact a local trusted real estate agent? I would like to potentially get 1-2 property’s,if not (2) just one home possibly paid in full or at least a good down payment from the equity I already have in my home now. Please give me some help and let’s network.I’m just wondering the best route I would have to take after the appraisal. I feel I have a good change to do what 24 year old ICU nurse did in episode (32) of BiggerPockets real estate rookies Prescott Williams. Took a Heloc from his parents home to purchase two rental property’s. Would a Heloc be the best option? Alternatives? Who to contact? Where to start after appraisal paper comes in?

Jon Schwartz · Answer

Robert,

I'd recommend opening a HELOC. The rate is variable, but rates should stay extremely low for the next few years. When rates start to tick up in a couple of years, you can refinance whatever you buy now into a fixed-rate mortgage and pay off the HELOC.

Don't get your own appraisal. Whichever bank gives you a HELOC will run their own appraisal and pay for it.

Good luck!

Jon

Rumen Mladenov · Answer

+1 to not rush the appraisal. Bank will want its own appraisal done so paying for one yourself before applying is just a waste of money.

As for HELOC vs cash out refi - that's a tough question. The benefit of a HELOC is that you only pay interest on what you draw from it, so until you find a property to purchase, you have 0 interest. Downside is that the rate is variable, and there is a chance that it may get frozen exactly when you need it most - when real estate prices crash and there's good deals to be had left and right (a la 2008-2010). Cash out refi is the opposite - you lock in great low interest rate for 15 or 30 years, and you get the money up front so no freeze to worry about, however you pay interest from day 1 and if your money is sitting in a checking or savings account earning 0.01%, even that low 2% interest on the mortgage is hard to swallow. So which one is better depends on what you expect the future to bring - credit freezes and real estate market crash (cash out refi is better), hyperinflation due to the extreme printing of money lately (cash out refi is better), or neither in the foreseeable future (HELOC is better).

Chris DeMello · Answer

@Chris Allen is right about appraisals from a bank. HELOC's are great tools to utilize! I use 1st position HELOC's on my homes, and used funds from it for down on other properties. That's one of the advantages of a HELOC. You can use the money from it for a down payment on other RE. Lenders don't allow you to use monies from PLOC's or other loans as a form of downpayment.

They're so much other advantages and strategies with HELOC's. Reach out if you wanna know more. Happy to share.

Aloha,

Chris

Chris Allen · Answer

Hey there @Robert Rychtarczyk; I have never gotten a HELOC so please make sure to verify. Also keep in mind this is just my opinion.

I believe that when you get a HELOC that the bank would probably want to order their own appraisal in order to issue the line of credit to you; so I would check with banks prior to ordering your own appraisal.

But I would look into a strategy called "Delayed Financing" with a HELOC, Alex Felice talked about it on BP show #301. I personally like the idea of a HELOC better than just doing a cash out refi. But depending on your situation and goals it may be better to go the other way.