What should I do with a HELOC?

Question

I found a lender who will give me a HELOC for my 2nd home with a variable interest rate of 8.25%. I can access about 150k at 95% LTV. I don't have a primary so this is the only option I've found after calling many banks.

Any ideas on what I can do with a HELOC of this amount with that high of a rate? Currently, I only have one property which is an STR. My goal is to scale fast so I can quit my W-2.

Thanks!

John Williams · Answer

Find a market where you can use that line to purchase a property with cash. After purchasing with cash (i.e. your line of credit), take out a mortgage on the property, get most/all of your cash back, pay off your LOC, rinse and repeat!

In my market, there are still opportunities to purchase properties around that price point!

Luther Wilson III · Answer

One of the best ways I can think of to scale faster is to utilize the BRRR method. I’m working with a buyer now who used part of a HELOC to do his first BRRR here in Kansas City!    Along with that BRRR strategy - we’d recommend using creative financing whenever you can as well.

Mark Langdon · Answer

I used HELOC's to give me financial freedom from fix and flips to small rentals and now apartments. Best use of the HELOC would be based on what you like to invest in. I have multiple HELOC's and they allowed me to expand my portfolio tremendously. The rate is not the best but if you can make the numbers work; who cares. Its not easy to get HELOC's on investment properties so use your 2nd home one to propel you to where you want to go. Only you can decide that.

Trevor Alexander · Answer

That seems like a really good rate actually for a 95% LTV on a second home. The bank that quoted you this is positive it's a second home? Didn't even realize there were lenders out there that would do HELOC's past 90% even on a primary.

I'm seeing cash-out rates on second homes with 75% LTV in the 6.5-7.0% range for 2-3 points. 75% LTV and after points and closing costs, you'd be left with closer to $100,000 cash out and only a point better in rate. I'd say the HELOC options looks very favorable if it's a shorter term play. I wouldn't want to keep a variable rate HELOC around forever.

Timothy Allen · Answer

I'm using a Heloc right now to put down payments on two multifamilys. One multi I'm going to rehab and refinance. All my cash flow will be paying the Heloc back down then I'll probably do it again.

Ray Hage · Answer

Hi @Alexandria Nicole Salgado, that's quite a high rate! I would keep checking around. I saw Fifth Third advertising a very low rate. I haven't used them but I am looking into it for myself. I'd advise a small family multi-fam or even SFH  that can be househacked (I have done it with great results for my primary) using the HELOC as your down payment. Now thinking, maybe a smaller commercial property as well would be worth exploring.

Scott Willms · Answer

It sounds like you have talked to several banks, but I would get a few more quotes.   Check local credit unions too.  Even in today's market, you might be able to get a better rate. I was able to find a 5/15 product where the first 5 years is a fixed rate.

Dallas Regimbal · Answer

@Alexandria Nicole Salgado  If your goal is to scale quickly, I would recommend looking into small multifamily properties and using the HELOC for a down payment. It won't be easy but it all comes down to finding the right property where the numbers work for your situation.

Jason Wray · Answer

That rate is very high for a second home, have you looked at a COR instead?

Robin Simon · Answer

Going to be hard to scale that quickly with the HELOC described and lowish liquidity.  Have you thought about bringing in a partner or trying the BRRRR method (AirBNBRRR)?

What should I do with a HELOC?

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