HELOC for Fix and Flip: Need Advice with 65k Equity?

Question

I currently own a property that I utilize for short-term rentals. My existing mortgage has an interest rate of 4.5%, and I owe $247,000 remaining on it. I have approximately $100,000 in equity built up. I'm considering applying for a Home Equity Line of Credit (HELOC) on this property to finance a fix and flip project. My intention is to access around $65,000 through the HELOC. I'm interested in hearing your thoughts and advice on this plan. What do you think?

Account Closed · Answer

WSECU Credit Union used to do HELOCs even if you have a 1st. You might try them. If KeyBank is still in business, they used to do them too.

If you take the value of the property and multiply by it 75%, then subtract the 1st mortgage of $247,000 then subtract the closing costs, that’s the probable amount they would lend if your income supports the added payment. $500,000 house times 75% = $375,000 minus $247,000 = $128,000 minus $3,000 = $125,000 HELOC.

The trick is to pull out the money and put it in a different credit union so when the economy collapses and they close your account unexpectedly, you still have the cash to work with.

Once you are cash rich, what are your plans to do with all that moolah? They may ask, they might not. To finance a fix & flip might go over like a screen door on a submarine but they like things like, "to improve my property".

Alex Hunt · Answer

I was also going to mention HELOC's are reserved for primaries, 2nd or vacation homes. Which maybe you could pass here. We do have a 2nd lien/mortgage program that works similar to a HELOC for 1-4 unit rentals. Refinance would be my last option as rates that low, won't return for many years.

Fix n flip is what I would use here, either out of pocket or the 2nd lien funds for the typical 20% down payment and usually 100% of reno funds are provided.

Happy to connect!

Andrew Postell · Answer

@Carlos Hernandez ok, from your math here's what I have:

Current Mortgage Balance = $247,000

Equity Amount = $100,000

Property Value = $347,000 (let me know if I'm off here)

$347,000 x 70% = $242,900

$347,000 x 75% = $260,000

So, if you found a HELOC lender that would provide you 75% of the property value then you could get a small HELOC of around $13,000.

Carlos Hernandez · Answer

@Andrew Postell so with my remaining mortgage amount it looks like a heloc wouldn’t be a option for me

Carlos Hernandez · Answer

@Andrew Postell, thanks for your prompt response. I forgot to mention that I currently have a remaining mortgage balance of $247,000 on the property.

Andrew Postell · Answer

@Carlos Hernandez love HELOCs.  You won't get that much of a limit though.  Usually they will give you something like 70% "loan to value" (LTV) minus your current loan amount.  Meaning, 70% of $100k = $70,000 - existing mortgage amount ($35k?) = $35k of a HELOC.  But would still encourage you to get one even if that's the limit.  Maybe they give you 75%...but somewhere in there.